Used after another word, challenged is a soft way of naming a difficulty. Visually challenged means a person cannot see well, or cannot see. Physically challenged means the body makes some everyday actions hard. Mentally challenged has been used for people whose learning or thinking is limited. The hope, from the late twentieth century, was to sound kinder than older, harsher labels. Though actually, many disabled people do not like this pattern: it can feel as if you are stepping around the truth, and it is easy to turn into a joke. Vertically challenged for “short” is that joke. In careful speech now, people more often say disabled, blind, or the real condition. You will still meet this use in older official writing and in comedy that copies that polite voice. On its own, challenged is also just the past of challenge (“she challenged him to a race”), but this entry is the polite describing use.