Bitter pills are sugarcoated, that is covered in something sweet, like a hard sugar glaze, to make them more palatable. The pharmaceutical industry has known that for decades, probably centuries and so we have all sorts of sugarcoated pills, bitter medicines on lump sugar, etc.
Figuratively sugarcoating something means the same thing, to make a thing, fact, decision, story, etc appear more pleasant or appealing. Just as with the bitter medicine the implication is that the reality has faults and problems that are being hidden by the sweet coating.
This is a very common expression and concept and applies especially to all things relating to politics and business but is also applicable in the personal space. A couple of examples:
Example 1:
Employee after an all-hands meeting: “They are planning to outsource IT and they are trying to sugarcoat it by telling us how much more efficient the company will be and how much easier our jobs will be once they have done so.”
Example 2:
Girl-friend 1: “Wow, Susan sure told Jennifer what she thinks of her latest plan.”
Girl-friend 2: “Yes, Susan has strong opinions and she doesn’t sugarcoat them either.”