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I used to think it was a type-o for owned, but I've seen it so many times now to figure that that can't be right. I think it might be similar to 'my bad', which I hear allot know as well.
From http://www.urbandictionary.com/define.php?term=pwned:


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.
 
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