Means "laughing my ass off", but is mostly used to make conversations non awkward. If something's really funny though, "lmao" will be used in all caps.
mark: yeah
steve: ok
*mark reads message and starts typing, erases, starts typing again, then just stops*
*awkward five seconds*
steve: lmao
rebecca: omg steve farted in class! Jess posted it on her snap story!
stacy: i just watched it LMAOOAOAO