Working the audience has always been professional wrestling's main goal. Kayfabe's death (and its corpse's recent floggings at the hands of social media and the internet) have made this increasingly difficult, but the line between fantasy and reality is still there, even if it's more blurred now than ever before.
As fans, we're supposed to be worked by the company. It means we're invested in the stories and characters that have been presented to us, and are reacting accordingly, much like any other form of fiction.
This is increasingly rare in the modern era, however. It's extremely difficult to work an audience that knows the business' every secret. Crowds aren't going to react the way the bookers want a lot of the time: they'll cheer and boo at their own discretion, and sometimes, that means working themselves into a shoot.
The phrase came from this legendary Hulk Hogan tweet. It means becoming so wrapped up in a storyline that you believe what is being presented to you is legitimate, creating "real" heat for a "fake" sport. It's becoming WWE's "go to" method of keeping their fans guessing, but the examples stretch back decades...