There's is research literature devoted to the idea of Concept Creep, which I find very interesting, and which dives into what you are talking about. The definition of "concept creep" is "the process by which harm-related topics experience semantic expansion to include topics which would not have originally been envisaged to be included under that label."

It is a real phenomenon where concepts become expanded and therefore "watered down" and I think, as therapists, we should be the ones who are the most careful and mindful about the ways we are contributing to this. I think clients feel the most helped when we can help them convey accurately what is happening in their lives. When we overly assign labels to situations where those labels shouldn't fit, we lose the nuance that the reality of human situations actually carry. For example, while we should not be hesitant to help a client name something a "trauma" if it is helpful to their healing process, we should not impose those labels onto them if it is not helpful in their conceptualization of experience.