Those familiar with Inuyasha and/or Japanese: I have a question about translation?

The word used is in the series is yokai and is basically a blanket term for all kinds of supernatural creatures, monsters, etc. There are certain subsets of yokai which are named after their certain characteristics.
Inuyasha himself belongs to the subset of hanyou (half demon) while simultaneously could also be considered an Inugami, or dog demon (Inu means dog), as would be his brother Sesshoumaru.
Kouga would be an Okami, while Naraku is a Tsuchigumo (fitting also because Naraku’s name when he was still human was “Onigumo”, which I think would literally mean “ogre spider”.

So I shouldn’t be thinking demon as in evil? More like Inuyasha is half of a doglike, spiritual force? Or Shippo is just the personification of a fox spirit?

yes

Thanks so much. That clears it up for me.

“Demon” might be better translated along the lines of “fairy-tale creature,” as @ragingloli‘s explanation demonstrates. The use of “demon” in translation was likely a result of trying to fit Eastern supernatural entities into the Western (possibly even Judeo-Christian) dualism opposite God or gods – which Japanese folklore appears to have in abundance.
Clash of the Titans and Disney’s Hercules do the same thing with Zeus and Hades; if you read the originals, Hades was a fairly decent guy, if a bit drab, and Zeus was hardly a paragon of virtue.

I chalk it up as another annoying attempt at localization, made under the assumption that Viewers Are Morons.

I am presently working on a theory that would be the inverse of my above post – that all instances of non-YHWH supernatural, across cultures, are, in fact, resultant from interference on the part of Judeo-Christian demons. Per this theory, “demon” would, in fact, be accurate.

We just had a conversation about this at dinner tonight—weird! My daughter has been teaching herself Japanese and is a big fan of Inuyasha. Like @ragingloli said, “inu” is the Japanese word for dog and (according to my 12 year old) yasha comes from the Japanese word for half. Not really much to do with the demon aspect, but I had to comment just because of the timing of this question with our dinner conversation!