A variation of the word "owned". The only reason that this word came about was because of a typo, and given that P and O are right next to each other. It has nothing to do with combining words or anything of the sort. It is rumored to have come about from an early Warcraft3 map, in which the creator meant to have a trigger say "Player X got ownd", trying to use the "1337speak" variation of "owned", but hit P instead of O, thus giving birth to "pwnd".
You have been pwnd. Etc...
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