I believe that dogs are aware of our "energy" (for lack of a better word), both positive and negative, that may be subconcious to most people. So they may not know the actual definition of their name, but they do understand that it has a negative connotation.

Besides, words are an outward sign of our internal thoughts and character. Other people don't know what we truly think; they have to go by our outward behavior and words instead. I wouldn't want others to think that I value animals less because I call them names that deprecate them.