Like lol, it is meant to convey a laugh in texting and instant messaging, but unlike lol, you must actually have laughed before typing it. It also implies more confident laughter.
Basically it's a way to say lol, without having to say lol. It's great.
Text: After drinking last night, I had to throw up. So I tried to make it to the sink, but ended up puking on the linoleum floor, slipping in it, and falling down into a pool of my own vomit.