1. A corruption of 'lol' or a purpose misspelling of 'lol'.
2. An idiotic excuse to do ANYTHING offensive or disturbing (and as such, funny) used mostly by Chantards (4chan, IIchan, etc.) Gaiafags, or any usual member of Encyclopedia Dramatica.
3. Something funny that is caused at the expensive of others.
Phil Shuman used this term in a poorly executed last minute piece that was thrown together. It shows his complete lack of ability to perform proper investigative reporting. Many LULZ were generated from this attempt.
Example: "LULZ is a corruption of L O L, which stands for Laugh Out Loud." --Phil Shuman, Fox News
encyclopedia dramatica loves the word so it can't possibly be good. Don't worry it's not. It's something overweight basement dwelling losers (read Encyclopedia dramatica writers and fans) use to justify everything they do.
Example: rational thinker: hey what did you do over the weekend.