I don't think I ever thought about my word choice around children until I said something I viewed as totally harmless to my toddler niece and my sister-in-law sarcastically responded, "Great. Thanks for that."
But once I had little ears around, I was keenly aware of what she was hearing. And then we had to decide how to handle words like "stupid" and "butt" (regardless of how you feel about them, people WILL say them around your kids--GUARANTEED).
There's a story in a book (I can't remember which) about an older father traveling on a train with his elementary-aged daughter. Due to the circumstances, the child is exposed to an inappropriate concept and she asks about it. The wise father instructs the child to pick up the suitcase at her feet. She attempts to, struggles, and fails to lift it. The father replies that just as she's not strong enough to carry the bag, neither is she strong enough to have a good understanding of the situation. And she should trust that her father will help her learn to carry both when the time is right.
Another metaphor is that words are tools. We use knives around our kids, talk to them about them, show how they're used. But they aren't allowed to touch the knives until we decide they're ready.
This is how we approach words. There are words that are perfectly fine for everyone to use. There are words that they need more understanding and wisdom to use. Adults and other people will use words like "hate" and "stupid," but they aren't allowed to because we don't think they're ready to use them properly and without harming others.
The benefit of this is it doesn't really matter what the children hear so you don't have to try to restrict others' speech. Recently, one of my kids heard a swear word while we were out in public. I asked, "do you know what that word is?" She didn't. I explained what it was, instructed that it wasn't a word she was allowed to say, and if she did, she would be in trouble.
So that's a little bit on how you can use the concept of words as tools to teach your kids about appropriate language.
For more on issues like this, check out our Helping them Grow board.