Using the phrase 'collateral damage' instead of 'civilians killed in war' is an example of -

Euphemism (for something)
A word or phrase used to avoid saying an unpleasant or offensive word. 
It is an indirect word or phrase that people often use to refer to something embarrassing or unpleasant, sometimes to make it seem more acceptable than it really is

Example:
"Senior citizen" is a euphemism for "old person".
"Pass away" is a euphemism for "die".
"collateral damage" is a euphemism for "civilians killed in war"