A delightful British* euphemism for the situation where someone has failed in their attempt to rein in an impending turd and said turd has emerged, making first contact with the unfortunate's underpants.
Typically the phrase is used for vulgar comic effect, rather than literally, but think twice before shaking hands with that person.
I think the chorus of The Macc Lads' "Gas! Gas!" serves as a good example:
Gas! Gas! Quick lads! The air in here is turning brown
Gas! Gas! Quick lads! Get the fucking windows down
Gas! Gas! Quick lads! Fatty's done a trouser cough
Gas! Gas! Quick lads! I think the big fat twat is touching cloth
Interestingly, in German the literal translation of touching cloth, Tuchfühlung, means making close contact with someone (in a non-sexual sense), although presumably not as close as a plop to soiled undercrackers
* apparently it's known in the USA too, but I'm claiming it in the name of Her Majesty the Queen
Sources and further information
alt.usage.english - http://groups.google.com/groups?threadm=36f3702c.1476633%40news.wolfsburg.de
The Macc Lads Website - http://www.macclads.co.uk/hectic_house/lyrics/lyrics_alpha/ben2.html