This is a forceful but casual way of saying "No!".
For example, if you strongly disagree with what a friend has said, you can use this phrase:
A: I think you're secretly in love with him.
B: No way! That's not it at all!
You can also answer someone's question with "No way!"
A: Would you ever consider going into law?
B: No way.
Another use of "No way!" is for communicating your surprise: