Unfortunately, it is not very well documented. The reason I believe there is such a policy is because of previous meta posts, and the continuing actions of site moderators. An important point that I forgot to mention is that the policy was originally network-wide, top-down rather than something that was created by the users of this site.
Here are the relevant posts:
I can't find any more recent statements from Stack Exchange on the ELU site. But without further information, I assume the policy has not changed. From what I have seen, the site moderators do currently follow this practice. They should be able to tell you more about its current status, and whether they do it just because they think it is a good idea, or if there are still instructions from Stack Exchange to enforce this.
Here are some relevant, more recent general Meta posts from Shog9 (a current Community Manager for Stack Exchange, Inc.):
From this last one:
There's precious little value and plenty of potential harm from
scattering vulgar language across the sidebars of the entire network.
Not only does it irritate people, the titles also get indexed in
search results as part of the pages they're linked from - we've gotten
complaints from folks who found their questions listed in search
results for some fairly shocking phrases due to this.
Under normal circumstances, it's best to either close or edit
questions that contain vulgar language. However, we do block a range
of vulgar terms from appearing in the network-wide "hot" list as a
fall-back in cases where there's a dispute or the post is simply
overlooked.
Of course, what counts as "profanity" that needs to be censored is not entirely clear; Jeff's answer talks about "extremely vile curse word[s]," and Shog's is about the programming language Brainfuck, which contains a word usually considered to be "stronger" than shit. It's not uncommon to see posters on various Stack Exchange sites use words like crap or dick.
However, the general position seems to be that titles specifically should minimize their use of words that are considered vulgar by some people.