This word is most appropriately used when someone is proven wrong in an embarrassing manner. It is not simply a matter of making a mistake, or being embarrassed, but is most properly used when someone has vehemently defended a position and been proven wrong.
It is also most appropriately used during a battle of insults when someone offers a better retort to someone's initial attack.
Person 1 – I can’t believe our boss called us his crack staff, that’s so insulting!!!
Person 2 – Why is calling us his crack staff insulting?
Person 1 – Because he’s saying we’re on crack.
Person 2 – No, he’s saying that we’re good, it’s a saying… dumbass.
Third Party - Ohh! You got moded!