c. 1200, "an evil spirit, malignant supernatural being, an incubus, a devil," from Latin daemon "spirit," from Greek daimon "deity, divine power; lesser god; guiding spirit, tutelary deity" (sometimes including souls of the dead); "one's genius, lot, or fortune;" from PIE *dai-mon- "divider, provider" (of fortunes or destinies), from root *da- "to divide."
The malignant sense is because the Greek word was used (with daimonion) in Christian Greek translations and the Vulgate for "god of the heathen, heathen idol" and also for "unclean spirit." Jewish authors earlier had employed the Greek word in this sense, using it to render shedim "lords, idols" in the Septuagint, and Matthew viii.31 has daimones, translated as deofol in Old English, feend or deuil in Middle English. Another Old English word for this was hellcniht, literally "hell-knight."
The usual ancient Greek sense, "supernatural agent or intelligence lower than a god, ministering spirit" is attested in English from 1560s and is sometimes written daemon or daimon for purposes of distinction. Meaning "destructive or hideous person" is from 1610s; as "an evil agency personified" (rum, etc.) from 1712.
The Demon of Socrates (late 14c. in English) was a daimonion, a "divine principle or inward oracle." His accusers, and later the Church Fathers, however, represented this otherwise. The Demon Star (1895) is Algol(q.v.).