Used in this sense, it's meant literally. Each of the parties to a credit default swap in effect enters into a bet. To the extent that one wins the other will lose. Equally, if one counterparty is unable, for whatever reason, to honour its obligation the other party will, to the same extent, fail to attain its desired ends (unless of course someone — like the taxpayer — is found to stand in for the defaulting party). It is in that sense an artificial construct, being neither a real asset, money or credit.
If anything, it's more akin to a bet placed on a horse, where the punter is equivalent to the buyer of a CDS and the bookie to the seller. It can also of course be compared to an insurance contract, although the principal players were particularly eager to ensure it wasn't classified as such since this would have brought them under an entirely different (and much stricter) regulatory regime. One of their fatal flaws (as David Habakkuk notes) is that they weren't traded on a regulated exchange and thereby marked to market, margined and cleared on a daily basis.
I'd assumed it would be clear from my comment that I wasn't suggesting they aren't both very real and potentially exceptionally dangerous (Buffet wasn't wrong when he dubbed them "financial weapons of mass destruction"). Their astonishing proliferation, complexity and opaqueness, and the degree to which they have become embedded in the financial system like a long and unstable daisychain is a scandal. And, as Cieran notes, now that the taxpayer has been saddled with the obligations resulting from AIG's failure, the damage has spread well beyond the contracting parties. Ingolf