Stacey asked the question... and I'm sure there's many answers, but here goes. First of all, I don't know when the word began to mean 'churchey-god-stuff' or 'stiff-dead-bad-churchey-god-stuff', which is what I think it usually means today.
At it's root, the word "religion" is a neutral term.
Religion is a personal, set way of life. It's my morning wake-up-and-go-to-work-routine. It's stopping at Sonic every day for a giant sized coke with tots. It's checking my e-mail before doing paperwork. Religion is any habitual, unthinking, comfortable pattern of doing things, that one repeats endlessly, usually for good reasons. Religion means surrounding oneself with familiar activities. And religion is a part of human nature.
Religion can be a good thing. When an alchoholic refuses to walk past a bar, that's healthy. When a person goes to the gym three times a week, or changes the oil in the car every 3,000 miles, or makes sure they go to the dentist each six months... that's religious, and it's healthy. I'm only 31, and I have the strong suspicion that I'm going to become a bit more religious about exercise and diet in the next nine years or so, at least!
Like everything else on this planet, religion becomes a problem when someone puts it in the place of God.
When we always have to bless the food, or risk the evil eye! When we always have to end a prayer with certain words, or pray in a certain tone of voice, or at a certain speed or volume. When we always have to use certain words or phrases in talking to God. That's "religious" - when the rule becomes bigger than God.
Stacey also mentioned Catholics. I grew up in South Louisiana, which is 50% Catholic. I know many who seem like dead, dry religious shells, going through the motions. I know some who were actually fresh, living, full religious worshippers. They can pray the Lord's prayer every day and - I actually believe this, though it didn't work for me - those words can be alive each time for them. So "Religion" can be alive.
God is big enough to inhabit our habits. In fact, I'm thinking of adding one or two more living habits to my own devotional life. But if I do, and if it ever becomes dead, dry, hollow repetition, then I ask the Lord to show me on that day so I can end those habits, and grow some new, fresh living habits with him all over again. And so we go.
The Lord's spirit on this earth does not sit still. The wind moves where it will, and we follow. Living creatures who follow the Lord are like the wheel-within-a-wheel, that can turn hard left on a dime, if the spirit goes that way.
But man's nature... especially man's fallen nature... likes to keep things the same.
And that's why, when people criticize "religion" they're usually talking about some other group of people who tried to make them fit into their ways-of-doing-things. Usually, when I see or hear someone criticize "religion" they're upset because they felt the Lord was leading them in a new direction, but the established powers that were 'over' them in that place would not allow it. And THAT happens in every faith and every denomination known to man.
But I seldom see or hear anyone talking about "religion" as part of their own human nature. More often, I hear men with ideas for how to keep changing so they don't get stale, and I wonder if they know that idea isn't necessarily spiritual.
So what is "spiritual"? And what's the difference?
There were pictures of the Holy Spirit in the Old Testament: The Lord gave the children of Israel a pillar of fire, and it moved. And the manna was fresh every day. And the water showed up every day, in a new place. And the tabernacle, the Lord's tent, his house in that day - it moved with them. Those are all pictures of the Holy Spirit's moving in the "assembly".
But the people needed something they could understand and follow. So God gave them the Law. And he gave them a King. And he gave them a Temple - and he lived in it! (For a while.) And he set up that whole system knowing that it would not last - it was not what he most-of-all wanted. He destroyed it all once, and re-established a part of it again so it could last a while longer...
And then he came as a Man! The Second Adam - a spiritual man! (Maybe one part of the reason he came as a man was to prove that a man could live by the spirit.) As a man, he fulfilled the Law (so we don't have to anymore). As a man, he lived by his Father's spirit within him. He did not live by rules. (He had 'customs', such as visiting a synagogue when he got to a new city, during his travelling ministry. But his customs did not own or rule him.) He lived by the Life of his Father inside of Him. THAT is what "spiritual" means.
He ended the old system totally. As a man, he filled the empty seat of the throne of David. And just to make it crystal clear, he predicted (and later, from heaven, caused) the destruction of the temple and the city of Jerusalem. All that was left was the synagogue, which the Jews had started themselves, after Babylon.
And Jesus Christ, as a man, standing on the earth in mortal flesh, said this: "The time has now come when those who worship the Father will worship in spirit... "
If anyone truly worships the father, they worship him in spirit, no matter what outward-way they do it.
Now christians all over the world try to figure out "what does God want me to do?" And we might fairly say that whatever answer each person comes up with is their own "religion". For some, it is dead, dry and fixed. For others, alive, fresh and flexible. And every other mix of all that religion can be. The spirit can move in some people's "religion". But not always. Sometimes, religion is there specifically to keep the spirit away!
Some people think that "religion" becomes a problem in the second generation. One group shakes off the old chains, starts fresh, finds Him, life abundant overflows among them, and they set up two shelters! (One for Moses, and one for Elijah!) Then fifteen to fifty years later their followers either shake off the new chains or decide they feel comfortable! By the third to fifth generation of 'disciples', many to most of the people are going through motions that don't always get filled with Him anymore.
But I believe the problem of "religion" is in every man and woman on this planet. It's in our fallen human nature, that came from eating fruit called "you-get-to-be-the-one-who-decides-what-is-good-and-what-is-not". It's in Knowledge. It's in trying to do Good and avoid Evil. It's in the flesh. It's in rules. It's in "forms of godliness" and human-righteousness. It's in trying to please God by human effort. There IS still a part of all of us, while we live on this earth, that wants to go that way. It will always be here.
And "religion" is also in the selfish, human part of a christian, when they've decided they very much DO want things to be a certain way - even for the sake of the Lord, so they say - and they come to a cross in their lives, which is this: Am I going to fight to establish this vision and to persuade others to live this way with me... or am I going to die on this cross and imagine that maybe the Lord has another path for these other servants of his? And I believe that's the difference. Is God big enough, or do you think others MUST ____ ? (fill in the blank)
(And for the record, I'm NOT talking about morality, I'm talking about forms, function and following. No one needs to preach morality, strict or loose. 'Sinners' know they're doing wrong, and we don't have to curse them for it OR bless and encourage their misdeeds... But that's another topic.)
Religion is like everything else on this planet. Because Adam fell, it competes with God for superiority. And something inside us wants God to win. And something else wants the religion to win... but that part is soooo sneaky! I think one part of freedom is knowing that "Good" is not "Life". And the rest, then, is Knowing that Life.
And now for the best part:
The Kingdom of God is spiritual. Sometimes, on this planet, a group of men and women can intersect with that and gather here together as a portion of His kingdom, for a while.
And sometimes they develop a particular way of expressing His Spirit together. And sometimes that "way" grows larger and more important until it's bigger than Him. And sometimes the systems that they establish during their prime last for a long, long time after they're dead.
And I will always believe that God - Who IS Life and Spirit - is constantly roaming their grand cathedrals, auditoriums, living rooms and the whole wide earth. He is blessing the live and the dead ones in various ways. He is hunting for ones who will live by His spiritual Life.