"Verse" or "Verses"?

There is no such verb as verse (with third-person singular present tense form verses) with the sense OP queries. The word is versus, it comes from Latin, and it is a preposition that means, basically, against.

I have heard many children incorrectly use this term "verse" as a verb. (In terms of a challenge, as in: "Me verse you.")
But last week, I logged my first observance of an adult using the term this way. I meant to ask if she had young kids, but I didn't get the opportunity.

I believe this has become more common with the rise of console video games in which players battle against one another. For example, Super Smash Bros. Brawl, a popular Nintendo game, will have a dramatic voice say "VERSUS!" when showing the character screen. I'm guessing that children and teens hear this and interpret it to mean "This character verses this character!", as a verb. They don't realize it's a preposition meaning "against".

A verse is a group of words put together creatively and rhythmically such as in a poem or a song. To use it as a challenge is grammatically incorrect. When you say you want to verse someone it sounds as though you want to teach that person how write a poem correctly.

I'm not sure whether this has happened in the intervening years, but there is now at least one dictionary listing {AHDEL} for this sense of 'verse' (admittedly marked 'slang':

verse 3 tr.v. versed, versing, verses Slang

To play against (an opponent) in a competition.

[Probably back-formation from versus taken as verses in such phrases as Boston versus New York.]

'To Verse' is a neologism that was formed through the process of back-formation from the Standard English word 'Versus'. For those who are unfamiliar, back-formation is when a word is derived by removing what are perceived to be affixes from another word. Examples include:

• To Burgle - From Burglar
• Haze - From Hazy
• To Vend - From Vendor

While yet not part of Standard English, every single word in the English language was at one time not accepted as 'correct' within Standard English. Verse is currently being codified and is likely going to become part of Standard English in a decade or two. It's as correct as any other word. It's only incorrect in the eyes of people who have some kind of vested interest in defending an arbitrary definition of 'correct English'.

It's not incorrect, it's new usage. As an older person it bugs me to hear it but I hear it a lot and young people understand it to mean "to challenge". Therefore that's what it means. Language is always shifting and changing. Dictionaries are not rule books. They are not prescriptive, they are descriptive, and as such they will always trail behind actual usage. If verse stays in common usage, expect to see it in dictionaries eventually.