Almost correct, Misophist, not quite: It's nothing to do with religion, and it literally means "to speak well of". It refers to the practice of choosing more palatable/acceptable words to describe something awful. In ancient Greece, they used to say that someone has "gone to the red tower" to indicate that he/she died. That's a euphemism. So is "kicked the bucket", "gone to meet his/her maker" etc. More contemporary euphemisms in every day language include "brown nosing", "vertically challenged" etc.

By its nature, a euphemism lends itself to jokes and can also become a mildly derogatory term depending on context ("financially challenged", "a card short of the full pack").

These days, political correctness has increased the requirement for euphemisms, as "we" cannot face up to certain truths as "too harsh". I think we have the makings of a new profession here - the Euphemist.