So a simple game of Settlers was starting in the lounge one day, when it was decided that someone (an impartial observer, of course) should be there to let the players know when they were being manipulated by someone (that someone usually being JulianEvans). MarissaQuitt, being the resident watcher-of-games-of-Settlers-of-Catan, was chosen by KevinOelze to do this.
She needed some sort of signal to let the unfortunate one know of the manipulation, and the obvious choice was the cthulhu sheep: simply make a beard out of fingers (your own, please), then wiggle them as if they were tentacles. Originally, the signal was meant to be completely silent... but this didn't last long. Soon, cthulhu sheep turned into angry cthulhu sheep, and from there to simply annoying cthulhu sheep.
So to all playing Settlers in the lounge: beware the Cthulhu Sheep!