When capitalized, Catholic refers to the Catholic Church. With a lower-case "c," catholic means "universal" and "inclusive." If you listen to anything from hip-hop to Baroque, you have catholic taste in music.
When it entered the English language in the sixteenth century, catholic simply meant "general" or "common." Applied to the Western Church, it essentially meant "the Church universal," or the whole body of Christian believers, as opposed to separate congregations. After the Reformation, the Western Church called itself the Catholic Church to distinguish itself from communities of faith that were no longer obedient to Rome. This usage remains the most common, although you can still use catholic to mean general.