"Severe Damage" is a euphemism applicable only to the simulator training
I may have misunderstood the point you are trying to make. But your quoted definition doesn't quite add up especially since a memory item in the Boeing 737 non-normal checklist is headed Engine Fire,
Severe Damage or Separation. The Condition statement states: Fire is detected in the associated engine; severe damage which may be associated with airframe vibration and/or abnormal engine indications has occured; or the engine has separated.
Seems to me none of these conditions can be labelled "euphemisms" applicable only to simulator training.