Gnarly: (adjective) (also gnarlier, gnarliest) DEF 1. Disgusting, horrid, or ugly (particularly used of something which, despite its ugliness, somehow manages to be 'wicked cool'). Dude! Where did you get that totally gnarly scar?
A lot of words enter our popular lexicon meaning one thing, only to shift radically within a few years; consider the odd case of the word gnarly. This strange term seems to have entered the popular imagination in the early 80s.
DEF 2. Bad, nasty. So, while the garbage men were on strike the streets smelled totally gnarly!
DEF 3. Something difficult, anything which presents an extreme challenge. Man, you thought Organic was bad? Wait'll you get to Biochem, it's completely gnarly!
The word obviously derives from the English word gnarl, which refers to twists or bends, typically in wood. The surfing culture of the West Coast occasionally trickles words into our pop-speak, and this term appears to have originally referred to waves that seem dangerous. It is pretty easy to imagine the mental connection between a large, curling wave and the gnarls of a piece of wood. Gnarly joined expressions like hodad, gremmie, and tubular in the popular imagination. It was a short step into the imagination of West Coast New Wave Mall Brats as a synonym for "terrible." The first time I remember hearing gnarly in its 1980s context was 1983, when my best friend said that something I was unhappy with was "gnarly." I thought it sounded funny, and adopted it as a sort of self-consciously unhip way of using hip slang.
DEF 4. Extreme or outstanding, either for bad or good. We were worn-out, soaked, and some of us were injured, but we had the gnarliest day ever.
But the young people of the United States weren't through with gnarly yet. Soon again its usage changed, this time it actually flipped to a meaning more-or-less opposite. Bad, wicked, sick, and brutal are four examples of words which started out to have negative connotations and then began to be positive. By the late 80s there were signs that gnarly was moving in that direction as well. The word enjoyed a brief time in the 90s where it was used in some of the positive ways as follows:
DEF 5. Flawless, perfect, lacking in even the smallest defect. Did you see Resident Evil? Milla Jovovich is sooo gnarly!
DEF 6. Cool, desirable. All of the PS3 games I've played are gnarly, but Dead Space kicks more ass than any of them.
With the acceleration of popular culture, facilitated by the Internet and other modern communication, most trendy words don't have much residency time in the lexicon of cool kids, and gnarly is no exception. By now, the word gnarly is little more than a relic of a time when parachute pants and New Wave music were ascendant and MTV played music videos ...but it is useful as a sort of quaint allusion to those times.
RoguePoet points out that snowboarders and skaters still use this word (in a completely unironic fashion). Apparently, snowboarders use the word "gnar" to refer to hard and dangerous snow. So the word continues in our culture!
References:
http://www.urbandictionary.com/define.php?term=gnarly
http://www.bbc.co.uk/wales/surfing/sites/features/pages/surfology_misc.shtml
Growing up in the 80s