The term's original usage was close to that of the traditional meaning of the word "own" - for instance, "I owned the network at MIT" indicated that the speaker had cracked the servers and had the same root-level privileges that the legitimate owner of the servers had. "Owned", a later variant, became more common in the late 1990s, as did the more abstract usage referring to any compromised security mechanism. By 1997, "owned" was regularly used in website defacements, and it subsequently spread to gaming circles, where it was used to refer to defeat in a game. For example, if someone makes a particularly good kill shot or wins a fight in a multiplayer video game, they might yell out "owned" to the loser(s), as a manifestation of victory, a taunt, or provocation.
Owned has now spread beyond computer and gaming contexts and become part of standard slang, where it typically entails severe defeat or humiliation, usually in an amusing way or through the dominance of an opposing party. Other variations of the word owned include own3d, 0wn3d and pooned, terms which incorporate elements of leetspeak.
At some point, the variant term "pwned" appeared in the same subculture; this alteration originated from typos that occurred when hasty gamers tried typing too fast on the keyboard, thus missing the "o" and typing "p" instead. Pwn has become a term in its own right but is sometimes still verbally pronounced in recognition of its origin.
Owned is a verb that means to dominate someone, in most cases a noob. For example, I owned that noob.
It seems a popular pastime is to write "owned", "pwned", "pwn3d", or even "pwnt", etc, on pictures depicting humiliation or defeat. There have been several websites dedicated to this such as Owned.com This site also contains videos of similar situations (many of which can also be found on YouTube). Owned and pwned are mostly used by gamers.