The story goes like this. One of my dwarves goes moody, and demands bones, but all of my domesticated animals have already been slaughtered and their bones used up. A dwarven caravan arrives, carrying a few animals in cages, so I figure I'll get my bones soon. But then a siege arrives also, so I restrict my civilian dwarves to the indoor burrows and send my elite squad of sworddwarves out to meet the siege. These guys are extremely well equipped and trained, the kind that can wipe out a full sized goblin siege while half the squad are asleep, you know the kind.
But by the time they're finishing hacking up goblins and it's safe to go outside, my broker's gone on a break, so I can't trade for the animals yet. And then pretty soon the dwarven caravan is packing up and leaving.
I know that my craftdwarf is going to go crazy from the failed mood soon, so I go for one last gambit. I order my squad of elite sworddwarves (the really uber one mentioned earlier) to kill the yak carrying the cage I want. They slaughter the yak without a problem, and I figure everything will turn out all right in the end.
Then, to my horror and astonishment, my sworddwarves start hacking up every one in sight. There is literally nothing that can stand against them, I only have one other squad, consisting of newbie recruits, and they're no match for the elites. The newbies get slaughtered, and the civilians start running around like headless chickens, trying to avoid the suddenly-murderous sworddwarves. People get killed left and right, a few dwarves get a tantrum in before they're cut down, and after a few minutes all that's left of my fortress are ten somewhat-wounded and exhausted sworddwarves, and a handful of surviving stragglers who've hidden themselves in the darkest corners of the fortress, hoping to escape the thirsty swords.
And then a Forgotten Beast shows up, and I figure, screw it, I'm abandoning the fort.
As far as I can tell, what happened was that when my squad of sworddwarves attacked the caravan, that set them to become an enemy of my civilization (in this case called the Strong Steel, quite ironic considering they were wearing and armed with steel), and then all the members of the Strong Steel, that is the rest of my fortress, became aggro to them, and vice versa.
Moral of the story: Don't attack your own caravan, and if you do, don't attack your own caravan with your best soldiers.