Yes, you're right. It means 'to make something sound better than it really is or to do something that makes an unpleasant situation seem less unpleasant'. "She is sugarcoating the fact that she gossiped about me." If something is sugar-coated, it is made to seem attractive, in a way that tricks people: "a sugar-coated promise."

Hello Nickolay, It could mean literally to coat with something sweet such as a hard sugar glaze . Its figurative meaning is to cause something to appear more pleasant and appealing . For example: " a sentimental treatment that sugarcoats a harsh reality"

basically yeah. it's trying to sweeten up a negative situation.