When you have a wound somewhere on your body that you have absolutely no idea where it could of come from.
Tim: Oh crap, i have an unknown wound on my finger!
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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.
Random Guy: "dude did you see that snipe! i pwned that guy in the face!"