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Typically applied to online regularly-changed/updated video games.

To "nerf" something means to reduce its 'power' or effectiveness within the game. Often times this is to solve some problem in the game (such as an 'overpowered' weapon/ability or super effective strategy), or to push the players in one direction or another (such as a new cosmetic/item/character).

Nerfs affect the 'meta' or prevailing strategy/characters/items used to win the game. In this way nerfs also give control to the developer of how the players play the game. i.e. nerfing a commonly used item to discourage the community from playing with it.

Some nerfs can be so drastic they change the very fundamentals of the game, and are often a contributing factor to the size of the playerbase, for good or bad.

Outside of games, this would again mean to reduce the things 'power' or 'effectiveness'. The exact analogy that gave birth to this term, is that of a Nerf Gun, compared to a real gun.
Oh man, they totally nerfed 'Titans Armor'! Guess I'll stop playing Golem now :/

They nerfed Irelia again?? Oh wait, its actually a buff. <-- (opposite of nerf)

Great, so now all the free-2-play guns are nerfed, guess I have to buy some to keep competitive. :(
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The term "nerfing" comes from the online gaming world of Ultima Online.

At one point in the game, the developers reduced the power of swords in melee combat.

This resulted in players complaining that it was like they were hitting each other with nerf bats, not swords.

From then on, if ever something gets made less worth while than it had been originally, it is considered 'nerfed'
"Oh man, they reduced the dmg on the berserker class and now it's totally nerfed!"

"Damn, the Devs nerfed those axe's real good!"
nerfed by Dave Elliott January 11, 2005
Related Words
The act of being utterly annihilated in any phsyical way; typically through long distance running
Runner 1: "I missed practice yesterday cus i'm a panzy, what did we do"

Runner 2: "Don't speak to me.... I'm to sore from getting Noffed.... Hard"
Noffed by cross country kid November 3, 2011
an office-friendly alternative to f*cked. implies dismissal, disdain, dislike, disinterest, etc.
well he can go and get naffed then.
naffed by ezz September 23, 2004

Neefed It Up 

To mess up or cause a failure, this term was popularised by the YouTube Channel Oliver Aged 24 (HowToDrawReallyGood ) where Neef (a previous student of his) would show some of his pieces of work that he created using the tutorial, they are always terrible and referred to as being 'Neefed up'.
"You have Neefed it up"
"You've really Neefed this up!"
Neefed It Up by JoeAged13 June 1, 2013

Nefferbilly 

1. The skin on the back of your knee-cap.
2. A black version of the monsters from "Where the Wild Things Are."

3. A slang term for a blue African Avatar that smells and emutes juices
4. The act of acting like a baby
1. Yo, I can see your nefferbilly.
2. Watch out! There's a herd of nefferbillies coming!
3. Sandra, you reaked today, did a nefferbilly get to you?
4. Joey, you need to stop acting like a nefferbilly before I hit you.
Nefferbilly by M&R Productions. March 31, 2010
Hilary knows every body's buisness in her neighbour hood- what a neffel
Neffel by Steal strings May 15, 2014