The etymology I originally heard was that the Lollards would sing their church music (usually Psalms) without musical accompaniment, rather ubiquitously, and were thus said to be going around constantly singing "lol lol lol lol lol", or something of the sort.
The newer meaning here is absolutely tremendous, I love it. I'm ok with shorthand and neologisms and brb and omg and all that, but this particular abbreviation -- lol -- I truly hate. The laughter I hear when someone types that at me is sacharine and false and makes my skin crawl. It's fake.
And such an absurd definition is so much the better when paired with an otherwise ponderous and world-historical meaning. Just wonderful.