I pronounce it "loll," and say it in two circumstances: One, if the circumstance is funny but not funny enough for me to laugh at (it takes a lot to make me laugh), or two, ironically and with a slight tinge of mocking for the circumstance.
It doesn't make since to me on why people say lol out loud because it's easier to LAUGH OUT LOUD literally. I only type it by the way. But it doesn't bother me that people say lol, I just don't know the point of it. :/