This phrase is sometimes used as a compliment
and sometimes sarcastic
ally used as an insult
, as in "What does that bloke think he is anyway? The life of the party?"
An individual who is the life of the party has in one way or another attracted the attention of the majority of others in attendance. Perhaps the individual has compelling stories to tell. Perhaps s/he knows magic tricks and can actually perform them in a way that doesn't make people gag. Perhaps s/he just has that charismatic personality which lights up a room and draws people to him/her like a magnet. Whatever it is this person brings with him/her to the party, s/he will probably be the one that the other partygoers will be talking about tomorrow around the water cooler, and will remember for days to come.
Most everyone wants to be the life of the party, but few can achieve it. Ideally to be the life of the party, one should have some quality about them that no one in attendance has, and it should be something that doesn't cause people to heckle the person or turn away in disgust, rolling their eyes. Oftentimes someone tries to be the life of the party, but fails in doing so and therefore saps the fun out of the party; inadvertently becoming a slack vampire. There is admittedly a fear that builds in some people, afraid to risk becoming the life of the party by doing something. So consequently they end up doing nothing and just lean against a wall examining a potted plant. Such people are known as wallflowers.
Sometimes it's not a person who is the life of the party, but a thing. Like really good dance music, or free drugs that someone brings along, or a keg of beer, or really incredible mouth-watering chips and dip. However if the best part of any party is the dip, I doubt many will hang for too long.