I think the commentary is that people who twist the meanings of words in order to charm and beguile are "bad". Like most of Pratchett's work, the subtext is pretty heavy.

It's a quote from one of his ficticious Discworld novels that introduces elves in his specific universe.

elves ("daemons") cannot be trusted beyond their own goals- humanizing them can be a costly mistake

Bad, at least in British slang of a moderately recent era, can mean cool.