It has the exact same meaning as the verb to own. The two words and their derivatives can be used interchangeably.
1. When a player is severely beaten by another player or party of players, in a game.
2. An expletive about a situation where something painful, embarassing, or bad happens to someone in real life.
The main dispute with this word is its pronunciation. It is originally believed that the 'p' is an accident and therefore not pronounced. However, several pronunciations have become accepted: p'ownt, pwynt, pinnt, etc.
Gamer 2: You pwnt us all...
2. Oh my God, did you see that guy get hit by that car? He was pwnt!
The word is a simple combination of pawn/pawned and own/owned.