At the end of Season One, in Devil's Trap, when Meg is trapped and Dean starts roughing her up, Bobby steps in to stop him, saying "That's a human being possessed by a demon. Can't you tell the difference?" [emphasis mine].
This implies a few things:
- Demons can appear, in human form, without possessing someone.
- Until that point, Sam and Dean had been assuming that Meg was not a human, but a purely manifest demon.
- Somehow, Bobby (at least) is able to tell the difference.
By that point in season 1, we had only seen a small number of demons on-screen: Meg, the not-yet-named Azazel, Tom, the "phantom traveler", plus the two unnamed demons guarding John Winchester. Once season two begins, demons become much more plentiful, and make up the primary opposition the Winchesters have to face for the remainder of the series.
There were a couple of other comments during Season One that appear to support the idea that demons can be on Earth without a human body. However, this idea appears to have been silently dropped starting with Season Two. And, as far as I know, any time a demon has appeared in human form, it was possessing a human body. Otherwise, it appeared only in its "smokey" form e.g. after being exorcised. This actually becomes a bit of a plot point later -- one of the reasons Sam gives for using his powers instead of Ruby's knife is that his way usually saves the human host, which only makes sense if all demons are possessing people.
Have we ever seen a demon on-screen, not in its smoke form, and not possessing a human body? Was this the intention behind Azazel's brief appearances in Season One, where he appears much less "solid" than human-possessing demons? And have we heard any indication since Season Two that this is even possible?