I was raised in the early 90's, as there was a rising awareness of multiculturalism and efforts toward gender equality in the workplace and society as a whole- with accompanying controversies. The culture wars raged around me, demanding that I take a side. My parents were active in the peace and civil rights movements in the 80's and 90's (being a little young during the beginnings of these movements. So I learned to use words like "African American" and "chairperson" (chair sounds like a piece of furniture to me) But I wonder, where do these terms come from, who decides they are better to use? . Since "political correctness" is a derogatory phrase coined by the Right in the United States, for lack of a better term I'll say "sensitive language for oppressed groups" Long-winded, but it gets the concept across.
Some words like the "n-word" and the "r-word" are agreed to be offensive by most people, even those who are less politically or culturally savvy. Others, while not as blatantly offensive, mostly just sound old-fashioned, and insensitive if said in a certain way. Homosexual is a neutral term by itself, though most use gay or lesbian, and I typically hear "homosexual" being used in anti-gay rhetoric.
Advocacy groups, and academics who think and write about various "isms" and the connotations of language usage, are the ones who coin these words for the most part. The problem is that it is rather elitist to expect most people outside of these settings to know and use these terms. I would not know many of these things if I had not been raised by educated activist parents, and gone to a liberal arts college. How many people would know for example, that they should use "little person" instead of "midget" to refer to very short people- without having watched or heard of the reality show "Little People Big World".
So I think we need to be careful to understand where others are coming from when it comes to their language usage in these areas. Polite correction, without condescencion, and suggestions of books and resources to learn more about groups that we are unfamiliar with is much more helpful that accusing a well-meaning person of racism/sexism/ableism etc. Also not every individual in a particular identity group is going to be aware of or prefer to be called by the latest term. It's often amused me that in spite of all the white teachers who have told us to say "African-American" and "Native American", the folks I meet typically call themselves Black and Indian or American Indian. It makes the most sense to me to use the terms members of the groups use themselves (aside from "reclaimed" words that they use among themselves) and simply being (gasp!) being respectful.