This is a truly curious word, a whimsical creation to identify a linguistic process that doesn’t exist. Nobody is ever likely to use it in real life, although it has appeared in a number of works that list language oddities. It refers to a supposed process by which an oo sound is substituted for another vowel, either to turn a regular English word into slang or to make a slang word even more slangy.
It was invented about 30 years ago by Roger Wescott, who was then Professor of Linguistics at Drew University in Madison, New Jersey. It appeared in a little article in the linguistic magazine Verbatim under the title Ooglification in American English Slang. He claimed to have derived the word as an expansion of the American slang oogly, which he said meant “extremely attractive” and “extremely unattractive”. So far as I am aware, it has never aspired to the former sense, being a modified form of ugly, thus being a example of the process he describes.
Though ooglification isn't a real process in English, Professor Westcott is making a serious point facetiously. Anatoly Liberman commented in his Oxford Etymologist blog in July 2010 that “The vowel sound oo has the ability of giving a word an amusing appearance. Whoever hears snooze, canoodle, and nincompoop begins to smile; add boondoggle to this list.”
Roger Wescott listed a number of slang terms from the past century that share this quality. Most of his examples are either uncommon or defunct. Divine has appeared as divoon, Scandinavian is known as Scandinoovian (sometimes as Scandihoovian), and at one time cigaroot was a well known variation on cigarette, as here:
“I can ’elp!” persisted Albert. “Got a cigaroot?” “Do you smoke, child?” “When I get ’old of a cigaroot I do.” “I’m sorry I can’t oblige you. I don’t smoke cigarettes.” “Then I’ll ’ave to ’ave one of my own,” said Albert moodily.
A Damsel in Distress, by P G Wodehouse, 1919.
One that is very common is shoot as a euphemism for shit, which fits the suggestions of both professors.
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