Demon

"Demon" is the Covenant name for all Spartans , but is most commonly used in reference to John-117 specifically. This is primarily due to the fact that the Covenant fear the Spartans, because of their ability to destroy hundreds or thousands of Covenant soldiers. They particularly fear John-117 because of his destruction of Installation 04. Because they treat these as relics and the Forerunners as gods, it is possible they see John-117 as the opposite: a demon.

Demon could also possibly mean a particularly powerful foe, and they might call Spartans "Demons" because they rarely ever die, compared to a demon's immortality, and are bringers of great destruction and defeat (just as John-117 destroyed Installation 04). The idea that Demons refer to powerful foes instead of only Spartans is, however, not supported in Halo 3: ODST, where enemy Unggoy refer to the player, who plays as an ODST, as an "imp" which could technically be a small demon.

Gameplay
In gameplay, when Covenant warriors encounter John-117 in combat and sight, they usually engage him with extreme caution. Unggoy and Kig-Yar have a tendency to retreat upon the Demon killing their Sangheili or Jiralhanae commander, or if they are the only soldier remaining. The San 'Shyuum and Jiralhanae also refer to John-117 as the Demon. The Prophet of Truth is the only member of the Covenant that has ever referred to John-117 by his alternate name of Master Chief. It is theorized that Truth says this so the player knows who "the Demon" is, as the term is not used in Halo: Combat Evolved. (However, in Halo: Combat Evolved, enemies will refer to you as a "devil"; upon your death, for example, Unggoy will sometimes say things like "dead devil." This may be a slightly inaccurate translation of the Covenant word for "demon," since the translation software used during Halo: Combat Evolved is not as advanced as that used during Halo 2.)

If any Covenant soldier actually kills a Demon, it may be assumed they are given a very high reward for their success against this potent and dangerous adversary. This can be noted in gameplay during Halo: Combat Evolved when John-117 dies, the nearby Unggoy laugh crazily or shout "I did it! I'm the one!" and similar things. The nearby Sangheili also laugh. In Halo 2 when John-117 dies, the nearby Sangheili say something along the lines of "The Demon is dead, I killed it!"; "The Prophets shall reward me well for that!"; "The Demon is dead, by my hand!"; "I've earned my Journey!"; or, more rarely, "Ha! And I'm not even the Arbiter!". Unggoy can sometimes be overheard after John-117 dies exclaiming, "I get his helmet!"

When the player throws a grenade, Sangheili (and sometimes Unggoy) in Halo 2 will often yell, "Demon flare! Scatter!", regardless of the grenade type.

Halo 3
While fighting alongside your allied Sangheili, they will call you Demon, perhaps out of respect and deference, as a passive insult, or to signify your rank as a Spartan (this could be out of not knowing to call you "Spartan" or simply out of habit). Later in the game, the Sangheili begin clarifying and referring to you as Spartan, or sometimes, human Champion; if you were to be killed anytime during gameplay, and the Sangheili witness this, one of them might say "The human Champion is down!" The theory that "Demon" translates directly into "Spartan" is disproved in this game when Rtas 'Vadum and Thel 'Vadam both refer to you as "Spartan" throughout the game. Thel 'Vadam, Minor Sangheili, and some Special Operations Sangheili will sometimes refer John-117 as "Reclaimer", just like 343 Guilty Spark. This is most likely as a result of the new human-Sangheili alliance, which makes the derogatory term Demon inappropriate. The term was obviously taken from 343 Guilty Spark (who, as their "Oracle," holds a position of fervor among the Sangheili), who always refers to John-117 as Reclaimer. Despite this, Thel will nearly always refer to John-117 as "Spartan," as does Rtas 'Vadum. If you die at the hands of Covenant soldiers like Jiralhanae and Unggoy, they will say things like "The Demon is dead!", "We are the Champions!", or, on rare occasions, things like "I got the Demon's boots!", or "I call his helmet!" Often, one will shout (with the IWHBYD Skull on) things like, "Ding-dong, the Demon's dead!"

Halo Reach
It appears as a name for customizable loadouts.

Trivia

 * Demon is the name of two achievements, one from Halo 2 Vista and another from Halo 3.