I have to join with Faces of Mu and mainiac in disagreeing with the mob here.
Political correctness is the politically correct cry of those who would sooner complain than learn and understand how and why their choice of words or images may be unacceptable in a certain context, offensive to groups that have suffered historical injustices, or otherwise socially awkward.
Critics of political correctness frequently use extreme examples of pseudo-censorship, often fabricated or greatly exaggerated, to discredit it. As an excellent example based on this thread, the "Baa Baa Multicolored Sheep" is a silly myth that has been perpetuated for years after a couple of daycare centers in the UK played with the lyrics to make them more fun and better teach colors. In reality, the suggestion by anyone that black people are offended by that nursery rhyme is both absurd and insulting. (Understand I am not accusing Nilocy here -- in fact, this point that Baa Baa Black Sheep offends nobody was mentioned in his post, and the rainbow sheep myth has been around for years since a spate of reactionary articles popped up on the topic in the UK.)
Another bogus myth of political correctness that is passed around is this idea of words or images being "banned". Except in very unusual circumstances, words do not get "banned". Remember the offensive Danish political cartoons a few years ago. Those were not "banned" anywhere across the developed world, despite a massive outcry and a fury of people rambling about political correctness. Actual censorship is rarely ever what people are talking about when they say political correctness.
So what is political correctness, really? Beyond all the cruft that gets glued onto it, the core is people complaining about the gradual transformation of language and images, when a new word or image comes up that supplants the old because it better captures the intent or tone of people who wish to express that idea. Once an old expression is abandoned in this way, it becomes socially awkward to use it. Why? Because nobody is certain why you would choose to use the old one anymore, and given that this is a sensitive topic to many people, choosing to evoke archaic language or offensive images on the topic is severely questionable.
Many times the old representation is rejected because it is a horrible stereotype, or because it became loaded with negative connotations over the course of its time in popular use. These are excellent ways to drive people away from using the word or image. On the other hand, it is often the case that the old term or image is not actually offensive, but is merely less accurately descriptive than the new word. An example is the "many names for black people" that was brought up earlier in this thread, where most of the names aren't even offensive, just archaic, and every transition was a natural transformation of language in the context of its times.
Despite the arguments of those who would rail against it, political correctness is not the doing of a hostile censor or cabal of oversensitive reformers. The very concept of political correctness as a looming social pressure calls to mind some kind of vast left-wing conspiracy. But in reality, political correctness is a very modest thing -- it is the ebb and flow of social trends, the silent and gradual transformation of language and images. Political correctness is a pejorative euphemism for modern expressions that have supplanted older ones. It's what grownups use to complain about the steady evolution of modern slang.
And yes, the result is almost always for the better.