It sounds like you're describing the phenomenon of the "Euphemism Treadmill" [1], the canonical example of which is the previously-acceptable term "retarded".
1: http://englishcowpath.blogspot.com/2011/06/euphemism-treadmi...
1: http://englishcowpath.blogspot.com/2011/06/euphemism-treadmi...
And that's where I feel this project is mistaken. Because it would flag any use of "retard" even if it were in reference to "flame retarding bromides" or an innocuous phrase like "the pace of development has slowly retarded" or "the tempo retards in the last four measures of the piece".
That's true. But grammar checkers screw up rather often for the same reason things like `alex` would: understanding context as a computer is quite hard.
To be clear, the goal of an insult is not to use some bad word, but to claim something that will hurt the person being insulted. Even when I was in school I remember 'retarded' being used almost always a replacement for 'absurd', and people being insulted with words like 'special ed' or 'special eddy'.
Not that I condone those things, but the point is that the insult was to say 'you are like that group of people' where 'that group of people' can be any group that is outside of the in-group. You can see this on message boards today where people are accused of being 'normies', etc.