"Smelly Butt Fungus" is a running joke in PSWhoa. It is based off of Hidden Death's line in the Tales of Symphonia Orb Scenario. He was trying to say a line, but everyone was ignoring him. Thus, he said something completely random (and untrue) because he didn't expect anyone to hear him and was getting annoyed. However, everyone heard him say the thing he didn't want heard.
A "Smelly Butt Fungus" moment is whenever a person says something completely stupid or unnecessary and really didn't want or expect anyone to hear it. However, those moments are usually fairly humorous, and usually brought up constantly. One other example is when Jordan complimented his sister on her chest.