My brother and I say this to each other because we hate text speak so much and we're kind of strange people.
I thought it was "laughing out loud" Fckin sad.
But when people write 'LOL' in a text, are they generally laughing out loud? My ex used to write it all the time in reply, but I never saw her laughing! (she was texting someone else whilst in my presence - just in case you were wondering!)