"Damn gay" means the exact same thing as "damn
straight" (i.e., word up, that's right, etc.), except that the term "damn gay" can be easily used by homosexuals or referring to
homosexual actions, etc.
Situation A)
Lesbian I: Holy crap, she is so
hot!
Lesbian II: Damn straight! Only... not... *awkwardness*
versus:
Situation B)
Lesbian I: Holy crap, she is so
hot!
Lesbian II: Damn gay! *note lack of awkwardness*