Confused As To What Is Racism

So when does a descriptive term become racist? I must confess to being somewhat confused and idly curious as to what is racist and what isn't.

Case in point, someone described someone else as a black wotsit(insert whatever insult you want) and this was deemed racist. However if I am described as a skinny white boy is that racist? Is it only racist if you are being rude or dislike someone? Are there degrees of it? I'm still confused as to why if I say the N word it is racist yet if a rapper from the broncs says the N word it is ok!*

And what is casual racism? For that matter what is institutional racism and how is positive descrimination not racist?

*for the record I don't actually use the N word. It's not nice to call someone a neaderthall ;)