courtesy of wikipedia:
The slang term pwn is a term used primarily in the Internet gaming culture, means to soundly defeat an opponent. It is generally used for taunting of a player's in-game enemies, and rubbing in victories.
The etymology of the term pwn is believed to be rooted in a typographical error arising from the close proximity of the 'p' key to the 'o' key on a standard keyboard. Initially — that is, before the term's adoption into the 1337 lexicon — "pwn" was generally parsed as an honest error and pronounced "own." Eventually, as the word took on a life of its own and began to convey a meaning stronger and more specialized than that of "own", its pronunciation began to vary as detailed below.
The term has become ubiquitous in Internet circles and is often used outside of gaming contexts. Its progressive form is "pwning." Its noun form is "pwnage" (or sometimes "pwned" or "pwnt"). An example: "Did you see that guy get pwned?" Appending "zors" creates a humorous variation of the word, e.g. pwnzors.
To be "owned" in the gaming world is to be miserably defeated by an opponent or an opposing team. However, the term "pwned" is usually used when the loser is humiliated in a fair competition.