It ain't rude!
The word 'cunt' is a leftover from pre-Norman English. I won't go into detail - I'll save the Evolution of the Language for another writeup - so all you need to know is this:
When the Normans invaded England in 1066, they spoke Norman French. The people of England spoke English, a language very close to German. Over time, the ruling classes, who were Norman, and the rest of England, the English, combined their languages. Because the Norman words, and the Latin writings, of the educated and ruling classes were considered cooler than English, Latin terms like 'vagina' were used instead of good old 'cunt'. Later, the Enlish words were not just very lower-class, they were considered rude.
Cunt originally meant simply 'vagina' and the shift to obscenity is a confusing path to follow. In a poem I once read, possibly by John Wilmot, 2nd Earl of Rochester, a scathing look at the haut ton, contained the phrase "...who fucked who and who's a proper cunt". So for the upper classes, at least, this word was impolite, as was 'fuck'.
However, in D. H. Lawrence's "Lady Chatterley's Lover", the word cunt is used by Mellors, the lover, in a non-offensive way. He uses it to mean 'vagina' and also 'having sex' or 'making love'. He is from the north of England, and quite 'lower-class', and for him, the word cunt represented intimacy with Connie through sex.
This is the briefest account of the word cunt I can give. If you found this interesting, consult a history of Linguistics and a good cultural History of England. Read "Lady Chatterley's Lover" and consult some of the stranger English poets.
1st June 2001: Of further note is the use of the word 'quaint' in English literature. This word is often used as a pun for 'cunt'. For example, in Andrew Marvell's 'To His Coy Mistress', the phrase 'and thy quaint honour turn'd to dust' refers to her cunt. Other poets to consult on the matter include Shakespeare, John Donne and Jonathan Swift.