What does AO2 in the remarks of an ASOS/AWOS mean?
The AO2 notation means the station is automated and has a precipitation 
discriminator. AO1 means automated but no precipitation discriminator. The precipitation discriminator will be able to sense the difference between rain and snow.

The METAR format is documented in the Federal Meterological Handbook No. 1 in Chapter 12. This particular notation is:


  12.7.1 c.
  Type of Automated Station (AO1 or AO2).
  AO1
   or 
  AO2
   shall be coded in all METAR/SPECI
  from automated stations.  Automated stations without a precipitation discriminator shall be identified
  as 
  AO1
  ; automated station with a precipitation discriminator shall be identified as 
  AO2
  .