Famous Game Master Quote
More often than not, the feature truly is working as intended, but many recent bugs declared "Working as Intended", while they actually WERE bugged. For example the infamous change to Frost Trap in release 2.0.1 (which makes no sense in a real-life context) where the effect continues even after the player has left the trap's AOE, have made players weary of the GM response. "Working as Intended", either shortened or not, is commonly used when players complain to each other about such bugs, and a number of servers even have guilds named "Working as Intended", mocking the response.
How many GMs does it take to change a lightbulb? - None, it's working as intended!
Not to be confused with NO WAI / YA WAI associated with the O'RLY fad, WAI stands for "Working as Intended," a common GM reply to bugs reported by player.
Real Life Basis
In "code change review boards", or boards that review any pending changes to a program, the phrase "Working as Intended" means yes there's a bug there and it is known, but fixing it has the potential to break other parts of the program worse than then current bug and/or would require a massive overhaul of the relevant code.