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You typically use it when you want to say that a game is laggy or the connection is trash like fuck (usually a multiplayer game).
Originates from the game Rainbow Six Siege.
Person 1: Dude the game is lagging so much I can't even play.
Person 2: Ofc, they have potato servers.
Potato server is a server with bad quality
Guy1: "Uplay servers sucks"
Guy2: "thats because they got a potato server"