Fungo bats have been around since the beginning of baseball and as most of us may know, baseball was said to be invented by Abner Doubleday in Cooperstown, New York during the summer of 1839. Since fungo bats were much easier to swing and gave off a ton of pop, they were almost seen as cheating back in the day. In a book from 1897 named "The Technical Terms of Baseball," the sportswriter Henry Chadwick stated,"The weakest batting is shown when the batsman indulges in fungo hitting." It wasn't until baseball bat regulations came around that fungo bats were only used by coaches and parents. 
First base fungo hits fly balls to center field (helps here if both fungo hitters move up and apart, hitting from about the front of the mound extended towards the bases). Center throws to second, second baseman is cutoff (for us it was, anyways - change to suit your style). Third base fungo hits balls to left field, who throw to third, with a second shortstop as cutoff (but you really don't need one, if you're shorthanded).
Even in those formative years, authorities on the game warned the practice of hitting fungoes should be limited to coaches. Henry Chadwick, one of baseball’s earliest proponents, claimed “The weakest batting is shown when the batsmen indulges in fungo hitting,” according to the Art of Batting. Others agreed that the practice was bad for training a batter’s reflexes: “While watching some of our freshmen practicing ‘fungo’ batting the other afternoon it occurred to me that it was about the worst kind of practice a batsman could imagine in training his eye in batting,” a writer claimed in the March 3, 1886 edition of The Sporting Life. “It trains the eye to meet the ball in batting it in a manner which never occurs in actual play. It ought to be prohibited on every well regulated ball field.”
Fungo bats are typically only used by coaches, to consistently place grounders and pop flies to their fielders for practice purposes. And with a fungo bat in their hands, some coaches can pull off wicked accuracy – as one story goes, the late California Angels player and coach Jimmie Reese once shot an 82 on an 18-hole golf course using nothing but a putter and a fungo bat.
The main goal of the game is to hit it to the pin in the least amount of strokes, similar to golf. Holes can consist of a certain sign in the outfield, in the tarp tunnel, off of the foul pole, onto the pitchers mound or off of a yardage marker on the outfield wall; it can really be anything on the field that can be hit without breaking. There can even be 2 part holes such as: First you have to hit the ball off of the scoreboard, then you have to hit the ball off of the right field foul pole.
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