How does swearing even work?!

Speaking of Cussing, I've been wondering what you all think about the topic. Specifically as it relates to kids... your own kids.
Steve and I have our opinions- we really don't have a problem with it in most regards. He can probably speak to this a bit better than I can, though, being a smarty-pants PhD student who's studied linguistics quite extensively.

We feel that words are just words- the fact that some are 'naughty' is kind of weird to me. I get it, you know... I understand it... kind of.

But really, I don't. Why are some bad? Why is it offensive to use certain words?
I found an interesting article about swearing that helps a bit.

But still I wonder... I often have a pretty colorful vocabulary. It got much better once I had children as I'm sure happens to lots of people. I grew up in a home where my father didn't hold back from swearing- but even he's better now that he's got Grand-kids.

Let me tell you a story:

Our beautiful daughter, Lily, is amazingly smart, very sweet, and srong-willed. (In my opinion) She's not the irritating type of strong-willed. She's not the kid that won't do anything or that throws fits constantly bossing around the entire house.  She's very specific about her choices- and in instances when she does not want to apologize for something, she just won't do it.

She'll stay in time-out for a while refusing offers to be let out for apologizing. She'll scream and cry and say, 'I'm ready to get out now!' yet refuses to humble herself enough to apologize, perhaps because she doesn't mean it.

There have been two instances where she's gotten so frustrated she screams, 'DAMMIT, DAMMIT, DAMMIT!'. Always three times. Always toward the end of the time-out instance. And ALWAYS in context.

She isn't dropping the bomb for no reason- she's really mad!

And in a way, I respect her for that. Now I'm sure Grandmas will disagree with me or may shake their heads in disapproval.  So let it be known that I'm still torn on this one...
What I'm really wondering is how to work through this with her as she grows.
Steve and I believe that swear-words are only words, but understand that they offend some and that we should respect that. We want to teach her the same.

For example; I was putting Lily in her carseat the other day and she said, 'dammit'. I explained to her that some people don't like that word- and that Grandma Joyce (whom we were traveling to see) will not like Lily saying that. Later that afternoon she told me, 'Grandma Joyce doesn't like it when you say Goddammit'. So she remembered and didn't say it at Grandma Joyce's house.

How do you all feel about cussing?