With irons, a fat shot results in the club really digging down into the turf, producing a much deeper and larger divot than normal - a big, fat divot, which might be the origin of the term.
A fat shot can be thought of as the opposite of a thin shot. And while a thin shot, for very skilled golfers, might sometimes be played intentionally, a fat shot never is, and the results of a fat shot are rarely good.
When one of these occurs, it is referred to as "hitting it fat," "catching it fat," "fatting it," and other variations on the theme. See the Fat Shot Tip Sheet, for a quick checklist of possible causes of this type of mis-hit.
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"My ball didn't make it across the water after I hit it fat."