"Faggot" is the classic anti-gay slur. Most people think it's a funny coincidence that the word also happens to mean "bundle of sticks." But there may be an ancient and awful connection between the two definitions: During the Spanish Inquisition in the 15th century, homosexual prisoners were forced to collect wood for the Inquisition's witch-burning fires--and their own bodies were then used to fuel the pyres when the flames died out.
The word's journey from Latin to Modern English is hard to trace; along the way "faggot" was, among other things, a reprimand for boys who were "sissies" and a putdown for women.
By the early 20th century, the term (by then usually shortened to "fag") had made it into American prison slang in reference to men who dressed in women's clothes. (And into British English to mean "cigarette"--possibly because cigarettes were considered effeminate by cigar- and pipe-smokers.)
"Fag" has remained a criticism of men with stereotypical female traits--long hair in the 1960s, an earring on one side in the '80s--as much as of actual gay behavior. It has also spawned expressions like "artfag" (a name-dropping, wannabe artist who is not necessarily gay) that play on the stereotype of gay men being sensitive and artistic.
"Fag" is still a direct insult when spoken with hostile intent to a homosexual man. But it has also morphed into a more generalized insult, to the point where kids and sometimes adults use it to refer to someone they find wimpy, not "manly" or just plain not good enough.