coopting derisive terms

Coopting terms (and stereotypes) can be a defiant way of claiming and enforcing one's identity as a member of an oppressed group.

Examples of terms that are used in context by members of a group, that when used by an outsider are/can be hateful (i cringe to do this): fag, dyke (and variations: bulldyke, bulldagger...), queer, queen, fairy, nigger, bitch, sometimes even girl, maybe geek, i can't do this any more, you get the point...

The reason that it's not okay for you, as a non-member of a group, to use this term, is that you probably can't understand fully the connotative meaning that it has to the person you're applying it to. And also, there's the issue of a power differential (whether historical or present, these things echo in the psyche). So you're not really using the same word they are.

Co-opting derisive terms: something Michel Foucault refers to as 'reverse discourse'.
Foucault argued: "homosexuality became a perversion but the discourse made possible the formation of a reverse discourse: homosexuality began to speak in its own behalf, to demand that its legitimacy or 'naturality' be acknowledged, often in the same vocabulary, using the same categories by which it was medically disqualified".
(my italics)
This can be applied to any oppressed group: it basically means co-opting the terms which the oppressors use, and making them into a source of strength, a base of power from which to redress the inequality.quote source: Michel Foucault, Power/Knowledge: Selected Interviews and Other Writings, 1972-1977. Colin Gordon, Ed. New York: Pantheon, 1980.

Of course, there is a difference between reclaiming words and internalising one's own oppression. Example, I may call myself queer because I'm out and proud. To consider myself queer as in a Bad Thing, perverted, wrong, would be rather sad and known as internalised homophobia. And if someone else calls me queer, they usually make it damn clear it's not a compliment. Similarly, Skin from Skunk Anansie can refer to nigga-rage (in Here I Stand), because she is black and certainly does not have her own version of racism going on in her head.

The thing is, chances are that the offensive terms are never going to go away. To co-opt them as a sign of pride, while reserving the right to punch some asshole who hurls them as an insult, is pretty much all you can do.