It's onomatopoeic, and capitalised not to indicate an acronym, but for emphasis. I don't know who originated the term but it was popularised by Eliezer Yudkowsky and Robin Hanson. The idea is that once an AI is able to self-modify to become smarter and consequently better at self-improvement, that feedback loop creates an 'explosion' of intelligence, and the AI "goes FOOM!".

"FOOM!" here is usually accompanied by some form of hand gesture evocative of an explosion.

http://wiki.lesswrong.com/wiki/FOOM