I do understand the phrase. But using “fail” as a noun just grates against my brain. Why has it become so popular?
I believe this phrase has largely become popular because of MMORPGs most notably World of Warcraft. In games like these, equipment is assigned various levels. grey being worthless, white is okay, green has some benficial atributes, and so on. The second highest level is known as Epic level and led to phrases as “I have all epics” or “I’m all epicced out.” And this led to using epic as a qualifier. Prior to WoW, it was common to say “You fail!” and the mixture of the two led to Epic Fail.
As well, the term has been internetted to death to the point where it shows up in all kids of websites, and then in peoples’ speech.
You may now run away screaming.
Fail is a noun, and has been for a very long time (since the 13th century, according to Merriam-Webster). You must have a defective brain. In fact, one might even go so far as to say that in attempting to process the word “fail” as a noun and being grated against your brain has, in fact, produced epic levels of fail.
According to Wikipedia, the video game “Blazing Star” had the “game over” message “You fail it.” Someone thought that was funny, and a meme was born.
New York Times Magazine “On Language” column weighs in.
I just self-identified, in another thread, as a Grammar Prick™. But I think it’s a hoot.
See, because those fun-loving Cyber-pranksters are using FAIL where they should use failure. So the fail itself is a fail…I mean, a failure, and it’s wacky, like “That’s funny… NOT!” I bet Wayne Campbell would laugh at FAIL! And then, after a pause, Garth would.
It’s like those cats that try so hard to spell Cheeseburger. And they make mistakes, because they’ve never been to people school.
You know, you really should print those out and correct the spellings! And then repost them on your own World Wide Web site.
Oh, I know-- you could title a MySpace page:
"If I May, I Would Like A Cheeseburger, Please."
[cute cat smiley]
Hm, that cite only really seems to support fail’s extant use as a noun in the particular expression “without fail” (as well as, apparently, in the niche jargon of securities dealing).
Oh, wow, I totally forgot that William Safire’s been succeeded by Ben Zimmer. I was hesitant going in, but got a pleasant surprise instead.
Failblog.org has certainly helped popularize its usage.
It’s just like the old gaming term “critical failure” only moreso. A botch so bad you actually had to work to get it.
If something can be done “without fail” then we must logically assume it can be done “with fail” as well. 
Yeah, Safire had many virtues - at least compared to the language dimwits like John Simon active when he started - but his attempts at doing columns on current slang always seemed 30 years behind the times. It would literally be impossible for him to have done that column.
The mention of a person named Anil Dash in that column brings back a fun memory. When I delivered mail during college I found myself once at the home of Anil Shitole. I’m sure he pronounced his last name as Shi-Toe-Lee or something like that, but the visual presentation was, um, epic. I sent it to a strange name competition and won a prize.
Anil Shitole is on Facebook, and has a better job than I do.
Hell.