Gully is one of those slang words that keeps picking up and dropping meanings. It's going into overdrive at the moment, being used to mean pretty much anything good or extreme. Its latest incarnation first appeared in the early 1990s (as far as I can find), and gained sudden, unexplained popularity in 2000. It is most often used to mean:

Cool or fly.

Street or hardcore (gritty, tough, ghetto {in a good way})


Keeping it real ("he's gully" equals "he's keeping it real").

One theory on the origin of this current usage is that it comes from the Street Fighter arcade game. One of the strongest characters in the game was Guile, which was mispronounced as Gully.

Older or less common meanings.

A shortening of hully-gully or holly-golly, a disturbance, ruckus, or racket. Also non-sense.

Gullyhole: vagina.

Gully-low: a jazz term meaning sensuous, insinuating music.