The Collaborative International Dictionary of English v.0.48:

frag \frag\ (fr[a^]g), v. t. [imp. & p. p. fragged (fr[a^]gd);
   p. pr. & vb. n. fragging.] [by shortening from
   fragmentation grenade; ca. 1965.] (Mil.)
   To assault, especially to kill or wound, with a fragmentation
   grenade. [Slang]

   Note: This term became popularized when disaffected American
         troops serving in Vietnam were reported on occasion to
         kill unpopular commanders by the use of grenades.
         [PJC]

The Jargon File (version 4.4.7, 29 Dec 2003):

frag
 n.,v.

    [from Vietnam-era U.S. military slang via the games Doom and Quake]

    1. To kill another player's avatar in a multiuser game. ?I hold the
    office Quake record with 40 frags.?

    2. To completely ruin something. ?Forget that power supply, the lightning
    strike fragged it.? See also gib.