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The Lunch Lady was a psychotic individual who for undisclosed reasons began to view the students of Sunnydale High as vermin due to them continually coming to her canteen and eating - which of course was normal behavior, yet in her twisted mind this was unacceptable and she hatched a plan to commit mass murder and her bitter thoughts were picked up by Buffy, who had developed psychic powers from a run-in with some unusual demons.
However, Buffy was not skilled enough to trace the thoughts directly to the culprit and had to search the school for people she felt could be plotting such a crime, following many false leads - however, Xander stumbles upon the Lunch Lady as she is putting rat poison in the students' food and is forced to flee.
While fleeing, Xander goes into the cafeteria and yells at the students to stop eating in an attempt to save their lives, however the Lunch Lady - now in a psychotic rage - smashes out of the kitchen with a cleaver and descends upon Xander, ready to kill him.
Buffy arrives in time to knock the cleaver from the Lunch Lady's hand, then the woman babbles about the students being vermin before Buffy ends the Lunch Lady's torment and threat via knocking her out (not using lethal force due to the fact the Lunch Lady was human).
The ultimately fate of the Lunch Lady is unknown, though she is presumably either in jail or in a psychiatric ward due to her actions, which were witnessed by many students.