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.
My comments related to the subjected non-aunnciated descriptions of what comes under "severe damage"
Note the wording "may-be". When all is said and done and you're able to walk around the engine after landing, you may consider all the observations and symptoms and categorize them as "severe damage". While in the air, any sense that the symptoms could fall under "severe damage" even though not confirmed or annuciated as such, guide you to a specific check-list action.