It was in Scorpion's fatality in MK2 if you pressed Down, Down, Up, Up, HP, where it actually made sense.

But other than that, it's just a joke in the series.

ok...the creators were hanging out and debugging decoding etc. the latest MK game and Dan Forden started saying "you're toast!"...then he altered that phraise to: "toasted!!" and THEN...it became "toasty!"...and it stuck I guess haha

Variations include: "Frosty!!""Toasty!! 3D!!!"and "Crispy!!"

Like takermk said, it's a joke and it derived from Scorpion's Toasting Fatality in MK2. Since then, the composer is known as Dan "Toasty" Forden.
A nice thing is that in MK4 he reintroduced the joke as "Toasty! 3D!" during Scorpion's 1st Fatality.

Dan Forden started saying it before MK2 was out, when he was winning in High Impact and Super High Impact football. They ended up putting into MK and matching it with Scorpion's Fatality.

If thats in MKA i will soooo get over the loss of Khameleon. In fact I think Id rather have toasty.

He says Toasty, and he also says Frosty if you're sub-zero and you freeze your opponent as he's on Danger.

Try it out hehe.

Before MK2 when the designers played whenever someone pulled off a combo they said "toasted" which eventually evolved into Toasty which eventually found its way into the game

Pretty much answered, so this thread is toast.