The poncho acts as a special safety suit designed to repel any dangerous ongoing pranks. The cord on the suit inflates the poncho to bounce any pranks off. If the airbag is not strong enough, it can be inflated more for even more protection, but if the cord comes off, the wearer haplessly floats up into the air. It would be best advised to be indoors should this happen.
The poncho was first introduced as part of a plan by Lola and Lana as an idea of theirs to protect themselves from Luan's onslaught of merciless pranks coming on April Fool's Day. Lincoln tried to demonstrate how it would work, but he still felt the pranks hitting him hard, and the cord came undone, making him float up to the ceiling. It appears Rita and Lynn Sr. were given ponchos as well to protect themselves, but their drawstrings came undone as well.
The suit was used as the final blow in everyone's attempt to get back at Luan for the insane and terrifying experience they endured at her trap at the Buttz Motel. After putting them all through the pranks, they placed her in the poncho, and the monkey she used earlier snapped the cord off, causing it to inflate, and lift her into the air, while grounded with a rope tied to the motel sign. After Luan floated in the air for a while, she vows revenge on her family that next year would be even worse for them.