Somewhat unsurprisingly, profanity is a lot more common in open source than in closed source software. Also not surprisingly, some people find it offensive while others view it as nothing more than an exercise of free speech.
Read it here
Anyway, aside from the abundance of strange names for small Linux distros, the Damn Small Linux FAQ says this on the topic:
Why the name?
Its really just a way to emphasize the incredible small size of the distro. If you are offended by the name, just do what most people do. Call it DSL.
Yeah, great idea – until someone asks you what it stands for.