i think its when you replace a mean word with a less offensive word eg. instead of using a swear word you might say Mean jerk instead of the "s" word you might say crap ;) i cant swear on wiki...
Here are some examples of euphemisms:
"Mentally challenged" instead of mentally retarded.
"Unmotivated" instead of lazy.
"The R word" for economic recession.
"The D word" for economic...