The word demon used to simply mean a spiritual being. It had no evil connotations at first, that was later added by I believe Greek culture. Even to this day they are known as the Ancient Ones, or the Elder Ones. They were the gods of ancient time, going back even farther than the Christian god. The Babalonion god, Ishtar, is also the modern day demon Astaroth. They are beings of power and immense stores of knowledge. For centuries they were called upon to answer questions, and they still are to this day. There are tons of books on them, most false, but each has similar teachings. Be careful, be respectful. Think about it, these are timeless beings that have seen the rise and fall of civilizations, and someone comes along and tries to command them. Of course they're going to get pissed.
A lot of the time what people see that they think are demons are actually lesser beings such as imps. In every religion the gods have had servants. Why should demons be any different. More than anything demons are intelligent and cunning, and you have to be careful talking to them. As a courtesy it is appropriate to offer something in return for a demons knowledge or assistance. The sick feeling they can give people is simply from their massive auras, which are drastically more potent than ours, and we are not used to that sort of power flux. In my opinion most of the things that demons do is out of boredom. I also think that there's a very real possibility that all ghosts or spirits as we know them are just demons having their fun.
As far as appearance, they can look however they want. Some will take the form of animal hybrids, others will take on a human guise, and some will appear as a human/animal mixture. There is one that comes to mind who's name escapes me, but he appears as a human with a ravens head. (Much like the Egyptians used to draw) They have been seen as a whole figure by those who have vast amounts of experience in summoning, but normally they will be seen in a mirror (skrying) or be seen in the way the influence smoke from incense or flame from candles.
Many people have contacted demons and found them friendly, eager to share their knowledge with someone who is open minded and respectful. They can attach to a person, and act as a guardian angel of sorts. They are not like the Christian god though, and will hurt your enemies.
Overall they are cunning, vengeful, powerful, intelligent, and old. Very old.
Something I can not stress enough when dealing with demons is RESPECT. For your own safety, do not disrespect them.
Thank you, Ruil for adding something of intelligence to the topic. I'm just going to elaborate a little.
In the Christian sense of order, I find many people get confused between demons and devils. The pecking order goes as such; devils who are the angels who were cast out of heaven during the war and demons: their workers. Demons can be dangerous because they never have been an angel or purer being and as Ruil said there intentions are often selfish but they have free will as much as you or I do. Most are intelligent, cunning and unforgiving but also associable. They exist in a world of sin obviously so most of their actions are defined by that. They are talented bargainers and love a good gamble. And many of them are driven by desire and want, often sexual which can make them hard to deal with and vulgar.
Appearance wise they aren't much more than an energy in their natural state but depending on the amount of power they're given, they often form in a halfling type manner, usually hermaphroditic. Depends on the purpose, who their master is, etc. The main message, once again thank you Ruil for this, is that they do not like to be undermined. If you call upon one, they will be doing you a favour by showing up. Never be in their debt, and above all, respect them.