Basically Hell condensed into the size of a tiny cut on your fingers, neck (from that jackass that sits behind you in math class), or dick (usually from looking at porno magazines). Almost always hurts like shit.
Also can be used to describe an amazingly small/tight/awesome pussy.
Luke: Dude, I got a paper cut on my dick yesterday.
Ryan: How? Were you looking at Hustlers again?
Luke: No, not this time. You know that fag that sits behind me in math? Well somehow he got me.
Ryan: What the Fuck!?! How is that possible?
Luke: I have no idea but i got a Scooby Doo band-aid on it!
Ryan: Oh, sweet, I love Scooby Doo
Luke: Yeah, me too, but its really tight and its cuttinng off the circulation, see?
Ryan: *looks into friend's pants* OMG it's all purple! NASTY! Dude I would take off the band-aid if I were you...
Luke: Fuck no dude, I love Scooby Doo. Do you know how much this band-aid means to me?
Ryan: *stares into friend's eyes*......
Pimp 1: Dude, have you ever poured lemon juice on a paper cut? It's tight.
Pimp 2: Aw, nice idea man, gotta try that sometime.
Pimp 1: Yeah, who doesn't love a good paper cut?
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