"Double insulated" means that the tool has double or reinforced insulation. If the manufacturer has managed to get two layers of insulation between the live parts and the metal case, the tool is indeed double insulated. Electrical drills have plastic gears, thereby insulating the motor from the metal case.
Internationally, there are four classes of insulation:
Class 0: Single insulation, exposed metal parts not grounded
Class 1: Single insulation, exposed metal parts grounded
Class 2: Double or reinforced insulation
Class 3: Extra low voltage, no additional protection needed.
I Googled the net for some wise words on this and found the following lines:
Class I equipment will provide the user with two levels of protection. The innermost level is the functional or basic insulation covering live internal parts. The second level of protection is provided by a conductive case, which is earthed.
Class 2 equipment also provides the user with two levels of protection, both levels being provided by insulation. The first protective barrier is the functional or basic insulation while the outer protective layer is known as the supplementary insulation and may comprise either of an insulating internal lining to a conductive case or in the majority of instances, form the case itself.
[This message has been edited by C-H (edited 12-19-2002).]