The word is a combination of teleport and frag (probably short for fragment).

You can telefrag someone by jumping into a teleport immediately after them, thus being teleported into their personal space and causing them to burst in a splatter of blood and guts. There is, however, a slight possibility that you both telefrag eachother, or even that your intended victim will telefrag you, due to the chaotic and unpredictable nature of teleportation.

The effect has been simulated millions of times on computers (see quake), but has at the time of writing yet to be applied to real-life physics. I am not sure whether this is due to the lack of teleports or due to the lack of volunteers.