Lmaoo is an extension of Lmao, which means 'laughing my ass off'. Lmaoo is to be used when one is more entertained than a lmao situation, but not as much as roflmao situation.
Adding more o's adds to how funny one finds the situation.
Person 1: z0mg i r batman
Person 2: na na na na na na BATMAAAN!
Person 3: wtf? lmaoo!