The word ass has seen many uses throughout time. Originially, ass
was a type of beast of burden
. (For a more complete definition, see Webster's) Since then, it has come to mean a person's backside
. By extension it has also meant sex
. As in, "I'd like to get a piece of ass
However, it has also crept up in American Slang (hell, and possibly elsewhere) as an intensifier. In a number of cases, it has replaced the older, and perhaps more socially acceptable 'very'. Students no longer refer to having a "very hard test", instead they take hard-ass tests. For a listing of other documented uses see: bitch-ass.
When did this happen? Why? I'll advance the theory that it started as an extension of the word ass to describe someone's derriere. Thus you'd refer to someone with a big ass. Later this would be twisted to that big-ass person. Linguistic connections would be broken down and finally the word ass becomes the intensifier it is today.