The difference between "catholic" and "Catholic"

"Catholic" is a word I use only occasionally, in both of its senses. I speak of having "catholic tastes" in food and music; I also speak of being a "lapsed Catholic" (usually in explanation, even justification, of my atheist beliefs). But how come a religious denomination known for being particularly conservative, restrictive, exclusionist and dogmatic, ended up being named for a  word meaning liberal, all-embracing and of broad or general interest?

Well, "catholic with a small c" (a phrase you don't hear anything like as much as "conservative with a small c") is derived from two Greek words meaning, roughly, "on the whole" or "according to the whole", so its original meaning was closer to "universal" or "general". Therefore, when the Catholic Creed (which dates back to the 4th century CE) says, "I believe in one holy, catholic and apostolic church", this utilizes a small "c", and has the sense of universality or generality.

Because this universal scope was a quality that the early Christians were keen to emphasize, Christianity became known as Catholicism, the first recorded use of "Catholic with a capital c" dating back to the 2nd century CE. The fact that the sect has become so restrictive and essentially un-catholic in the intervening centuries is unfortunate and an accident of history (if it can be called an accident), but nothing to do with its etymological roots.