I first heard this term used my freshman year of college. Some names have been changed to protect the innocent and the not-so-innocent alike:

Scene: Anonymous Female Friend and I are on our way to a party with Random Guy and a group of people. Anonymous and I quietly fall behind the group so I can ask her a quick question.

Me: So who is the new boyfriend?
Anonymous Female Friend: Oh, you mean Random Guy?
Me: yeah.
Anonymous Female Friend: He isn't my boyfriend, he is my designated fuck.
Me: ... (see the discussion under ... of anime-based video game dialogue)
Anonymous Female Friend: You know... I brought him along so that I will have someone to go home with after I get completely smashed.
Me: WHAT!!! (loud enough that everyone else looks back at us for a second)
Anonymous Female Friend: Well I wouldn't want to end up fucking someone I don't know. They might have a disease or be a creep or a stalker or a frat boy and I would be so wasted I wouldn't know it until tomorow morning. I am reasonably certain that this guy is clean and that he will use a condom. He won't get too emotionaly attached or get weird on me. This way I can completely let go at the party without too much risk.
Me: You mean he knows about this arangement?!?!
Anonymous Female Friend: Yeah... well kinda... I just looked at him seductively and told him that if he looked after me at the party tonight there might be something in it for him afterwards.
Me: Wow that is pretty good logic. You scare me sometimes. You know of course that I would have looked after you tonight if you had asked me.
Anonymous Female Friend: Yeah, but you would get weird on me.
Me: Well yeah probably, but I meant that I would have done it without the promise of sex.
Anonymous Female Friend: Yeah, I know but wanted you to relax and enjoy the party too. Besides you need to be out there chasing those women tonight.

Of course she knew that I was not the type to be out there chasing women, but we rejoined the group and went to the party.

As far as I know the arrangement worked out to be benificial for all involved.

Compare/Contrast: fuck buddy, friends with perks, best friend with benefits, friends who fuck