lolfag stands for "lots of love for all gays". It's a friendly term to show how un-homophobic you are. It's mostly used when someone says something gay to show that you aren't judging them.
John: Hey Eddie!
Eddie: Have you been to the restaurant?
John: Yeahh!!! (searches it on wikipedia)
Eddie: Really? Whats your favorite thing to eat?
John: uhh uhh... (nervously rifts through wikipedia) uhh uhh pocky sticks!
Eddie: lolfag