|Someone is wrong on|
Pwned is a boastful term used in association with getting "owned" over the internet, by being beaten badly or humiliated, upon which many watch in awe and bask in the lulz.
Theories of the origins of the spelling vary, but some believe it was due to an online gaming event involving real-time fighting where a player would beat another, and in a hasty whirlwind of typing while evading death for his/her character, misspells "owned" as "pwned," much like how "the" is often spelled "teh," to the point where Wikipedia even has its own article on it. Others, thinking it was a new term, quickly adopted it as a trend in hopes of proving that it can give credence to the person for wasting their life away playing The Game, which you just lost. It is also believed to have come from a spelling error, since patched, in the RTS game Starcraft. The message was displayed after defeating another player.
Some think that the transition of the first letter comes from a contraction of "Perfect Ownage", the defeated person or party having no chance at success or victory, and displaying a pathetic defense that is utterly shattered under the weight of the opponent's battering attack. This is a severe case of humiliation, often leading the destroyed player to resort to personal attacks upon the victor in order to make cheap points and salve their broken pride.
Yet another explanation holds that the 'p' is derived from the 'sticking-my-tongue-out-at-you' emoticon, :p.