An insult in Europa Universalis II is a deliberate diplomatic action intended to destroy relations between two countries.
Sending an insult is a diplomatic action. There are no special preconditions for sending an insult. Normal preconditions for diplomatic actions apply: the country must have at least one diplomat and enough money.
Once sent, an insult degrades relations between the insulting and insulted country by -50. Also, it gives the insulted country a 1-year casus belli on the insulting country.