It is a mixture of the words, hilarious and bad. When something, either serious or a not so funny joke, is utterly terrible that you have no choice but to laugh at how terrible it is.
Joey: You know the show Avatar the Last Airbender?
Sean: Of course, that's like my favorite cartoon.
Joey: Yea, but the movie... That shit was hilarabad.
It expresses both 'hilarious' and 'horrible' combined since cynicalpeople often want to use these two descriptions simultaneously in reaction to a lot of things in the present day.
That senator who wanted to require piss tests for the distribution of welfare benefits just got busted with cocaine himself - that is f-ing hillarible.
This plight of the whole world is sadly hillarible even though as a species we kind of deserve it.