The term Daesh is an acronym for ad-Dawlah al-Islāmiyah fīl-ʿIrāq wash-Shām, which is Arabic for The Islamic State in Iraq and The Levant. So really it's not any different than calling them ISIL, and the degree to which it is an insult to them is in considerable dispute.
The Toronto Star's deciding to use Daesh to describe ISIL/ISIS is mainly aimed at mollifying Canadian Islamic groups that are worried about the connection between Islam as practiced by ISIL and them. In essence, it's politicized reporting; refusing to call something by it's proper name because you don't like what it represents. It's not any different in principle than calling Donald Trump "Drumpf," Mohammed Ali "Cassius Clay," or Caitlyn Jenner "Bruce." The leader of ISIL, abu-Bakr al Baghdadi, is an Islamic cleric with a PhD in Islamic Studies. So it's pretty amusing that The Toronto Star's editor Michael Cooke thinks he's the more qualified of the two to determine what's "Islamic."
From Brian Lilley: