I don't use the term because I don't want to make someone feel shame about their body but I have always read uses of 'small dick energy' as insulting, not organ size, but the culture of toxic masculinity that believes the ridiculous idea that genital size is indicative of value.
And then overcompensates with other toxic masculine traits in order to PROVE stereotypical masculinity through other means. Depending on who is wielding it, it seemed a critique of toxic masculinity and traits and not actually buying into the idea that genital size = masculinity.
When it's used by feminists, I don't see it's focus on genitals as validating the toxic masculine belief that small genitals are indicative of less masculinity but a mockery of that belief system and its toxicity. I read it as mocking a kind of masculinity not a kind of body.

@ahreaume

Spot-on.

I'm a slow learner and perhaps wrong but this is also how I'm coming to understand the term "white" as it's frequently employed these days. If one is deeply bothered by either term as employed in their respective contexts, one needs to do some hard thinking and self-appraisal.

@Doug_Bostrom yes. That was an analogy I made to try to explain it too. It’s like talking about whiteness as a harmful concept. Whiteness is harmful. The thing being referred to by SDE is harmful toxic masculinity. We can use better words but that isn’t the same as talking about a body. It’s a metonym.