Someone explain the saying "That's so gay"

I never quite understood it.  I just never did.

I grew up in the inner city of New York, so I think it has something to do with my early hyper-awareness of the American socio-economic and racial class structure.  I knew there were different classes of people...mainly poor and rich were the two big ones for me, but as life continued I learned that people can hate you for way more than your money.  I guess I realized sexuality was one of those factors by which people can judge you when I entered high school.  I went to an all boys Catholic High School...so the latent homoerotic behavior was everywhere.  So something popular I always heard was, "That's gay" referring to an object or event, and rarely referring to a man or woman.

Whenever someone accuses someone/something (because all nouns have a sexuality these days), my initial response was "Who cares?"  I had Regents to study for, and could seriously care less that your detention slip is "gay".  I was busy with too much work to care that your detention slip had a curious sexual experiment with an envelope once in college (or maybe they were referring to the teacher who gave them detention...I was never entirely sure).  And I was accused of being gay for several reasons (none of them having to do with my romantic inclinations, relationships, or sexual history).  I remember once retorting to such an accusation "so what if I was?"  This was the proverbial nail on the coffin for my social life in middle school.  By admitting that I **gasp** did not care about the specifics for anyone's sexual orientation including my own, I was weird.  I never understood the connection between something being gay and awful at the same time.  I know several gays who are awful...but I don't think they are awful because they are gay.  They're so awful that I don't like to imagine them having sex with anyone, so they're basically asexual in my mind.   

I just overheard some high schoolers throwing this around on the afterschool subway, and I was just wondering what is with this obsession of their's.  I thought the highschooler of today was different from that of 5 years ago.  I mean in that time we came up with YOLO and SWAG to keep them distracted, didn't we?  Snapbacks and acid wash were revived to give them inspiration to the struggles of old. Meh...I guess I was annoying some other NYC blogger when I was that age.  I kind of wish people would get over it, and read more books, and just behave like they have an education.