Shithole, pronounced She Thole Ee, is a country in Africa, no?
I wouldn't be offended by the remark. Folks use these sorts of words. We are not made of porcelain.
It's what it portends which may be significant.
Its meaning is presumably that he wants an immigration system which differentiates people based on skills and background.
That's certainly a change from the American tradition, but not different from, say, Australia.
And it's in keeping with his moves towards Islamic countries.