Part of it is the fault of other people's ignorance, and part of it is the fault of the creators of Satanism foolishly naming their religion.
As I understand it, Satanism was created as a counter to Christianity, to be everything that Christianity is not. It's a religion of "smart hedonism" essentially, where you basically do what makes you feel good, provided the good you recieve from any situation does not outweigh (in your mind) the negative aspects or consequences. It's also a religion which bitterly attacks what it believes are the negative aspects of humanity. For instance, in Satanism, stupidity is one of the most haneous sins.
But then there are many different branches of Satanism, though the most commonly discussed is "LaVeyan Satanism," or the official "Church of Satanism." I criticize LaVey for adopting such a misleading title, when, in fact, they don't believe in an entity called "Satan" as all. The term Satan in their belief system is merely symbolic of the dark force which drives man's passions, lusts, and ambitions, essentially human nature. The Satanists embrace human nature, rather than try to rise above it (as they believe many members of other religions ignorantly try to do).
Aside from LaVeyan Satanism, there are a few splinter groups (such as the First Church of Satan, founded by LaVey's daughter, who felt the new administration was disingenuous to her father's cause), but the LaVeyans are quick to denounce them. It would seem that despite their attempts to be the opposite of Christianity, the same things are happening to them (denominationalizing, sects, splinter groups, cults, etc).
However, the term Satanist and Satanism can have a much more broad meaning, as the word has its roots in other practices besides those espoused by Anton LaVey. There are other types of "Satanism," that involve less secular practices.
Demonolatry (the worship of demons) considers Satan the head of all demons, or merely the sum force of which all demons are a part. Satan is also sometimes associated with the dark Egyptian god Set, so some count Setianism (which is practiced by neo-pagans) in cahoots with Satanism.
There's Luciferianism, which connects the pseudo-Biblical entity (meaning that the association arrived as a result of Christian mythology, but is no where found in Scripture, the only reference to Lucifer in the Bible is a reference to King Nebbechudnezzar of Babylon) of Lucifer with Satan, as synonymous, and the supreme being. Luciferianism shares a lot of sociological ideas with LaVeyan Satanism, but is definitely a separate belief system.
There's also Theistic Satanism, which is what most people think of when they hear the word "Satanism." TS basically revolves around the worship of Satan as an entity, particularly the Judeo-Christian character of Satan. However, following something similar to a Gnostic path, they interpret the Scriptures in reversal, claiming that Satan is the hero and Yahweh is the devil.
So yeah, Satanism is widely misunderstood and demonized system of belief, but many branches the term "Satanism" are misunderstood because of poor planning on their part, in my opinion. One would think that Anton LaVey could have come up with a more accurate descriptor than Satan, because his brand of Satanism doesn't have much to do with the entity Satan.
