There are many different definitions of pwned and where it came from, here is the real one.

It was invented to say "player Owned", it is only used when a human player is killed or lost a game. It was not invented by a WoW player.

"Pwned" meas u were overwhelmed by something or someone.

This word originated in Dota (warcraft III "mod")
because in the earliest version of this game, when you kill your enemy you need to take his head and sell it in a PAWN SHOP to get some gold. So it turns that you have just "PAWNED" your enemy. Then the word "PAWNED" became "PWNED" for an easier typeing or maybe just to look more like the other expression that means the same thing: "owned".

That's it.

This was created by css player breakyourface when he was typing on fps bannana to reply to bulletin insted of typing owned he typed pwned
it means to whoop someones ass in a game of some sort