A corruption of the word "Owned." This originated in an online game called
Warcraft, where a map designer misspelled "owned." When the computer beat a player, it was supposed to say,
so-and-so "has been owned."
Instead,
it said, so-and-so "has been pwned."
It basically means "to own" or to be dominated by an opponent or situation, especially by some god-like or computer-like force.