You'll find plenty of debate on this specific subject in the sub's post about it.
The word was humorous to me at one point as well.
However, it was being applied in general to homeless people.
Portland, like many cities, has a serious and growing problem with homelessness.
The word was being used to demonize and unfairly group drug addicted folks, people with mental health issues and those who are not those things but still homeless.
I do not know if there was a need to ban it outright, however I think there were reasons to want to.
To some extent, sub-wide decisions like this are taste-profile questions and with taste you will not get agreement.[2]
For example, Craig Newmark had to walk a fine line with adult services on Craigslist.[1] Many craigslist users wanted those forums. Many did not. Ultimately, I think decisions like this give character to the community.
So with /r/portland, banning 'criddler' wasn't just about banning a word, presenting a posture of the sub toward homeless people in general.
[1] https://en.wikipedia.org/wiki/Craigslist#Adult_services_cont...
[2] One way to solve this is to allow the sub to elect moderators, which is what /r/portland did. In this case, I did say that I was for the ban on the word and was still elected by the community that was angered by the ban.