"Sister Lotus" is a keyword that you will find on the Top 10 lists of all the major search engines in China. You can read a complete description of her on Wiki (see below) but I can just sum it up for you: she is famous because she is a joke.
Read about her on Wikipedia
Or her own blog (in Chinese only, but plenty of photos)
As you can see, she is not really attractive, and based on her blog and online discussions about her, she is not funny or talented, either. There is really nothing special about her, people who are delusional about their own attractiveness are everywhere. Seems that the Chinese people find her entertaining exactly because she is slightly mental.
The strangest finding I got from my research on Sister Lotus is how she became an Internet celebrity. Apparently, she first started posting her own sexy pix and over-confident remarks about herself on the BBS of Beijing and Tsinghua Universities, which are the top 2 universities in China. Other users of the BBS started to praise how attractive she was and encouraged her to post more photos, which she happily obliged. All these people must be telling more people to check out this weird chick at the same time since there was a tremendous network effect and she became a national phenomenon in a very short period of time.
All of a sudden, the whole China was talking about her and people tried to tag along her fame. One guy said that he wanted to marry her and got his five minutes of fame. TV shows and various consumer products PR campaigns invited her to create more media exposure. At these appearances, people kept on prompting her to show more sexy poses, talk about how pretty and special she was, which in turn continued to encourage her to keep making a fool out of herself.
The ridiculous craze has reached such a point that the Government actually made blog hosts "move her blogs and any related news to sites with less traffic" in order to douse the fire. Hey I am all for freedom of speech, but seriously, I agree with the Beijing Government on killing this thing. Making fun of a marginally mental woman is not a good thing, especially it started with the students of Beijing and Tsinghua Universities, young people who are supposed to be the creme de la creme of the country.