Literally translates to "I am laughing because I just now remembered that butts exist," but meaning depends on usage- can be an insult, a compliment, an observation or a question.
Frank: "Hey, I just joined a frat."
Paul: "lol butts"

Shawna: "Do you like my new haircut?"
Paul: "lol butts"

Paul: "lol butts"
Steve: "I agree."

Paul: "lol butts"
Steve: "No, we lost it a few weeks ago."
by Gus November 11, 2004
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used on the friend society as an ice-breaking term, or a conversation starter.

Velvet: so guys, does anyone have anything nonfaggy to vsay? it would make me rather happy and excited.

MrAnon: butts lol
by The Almighty Beav October 15, 2006
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A white girl asking a big black guy to come do 69 on her and cum on her tits
White girl: daddy come fuck me in the butt lol bitch
Black guy: ight hoe
by BBC DADDY I LOVE POP January 19, 2019
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