a typical party where everything that is being drank is poured into red, plastic cups. this is astereotype, not a fact, but it is still very common amongst college and high school students.
Those porno videos like "College Fuck Fest" or anything like that when two people are having sex in front of a group of people at a party and they are all holding red cups.
Similar to 'Thats what she said' but more sophisticated grown up, party slang. Used especially when alcoholic beverages are involved and they are disguised in red party cups.