The districts of Venice are called sestieri (singular: sestiere) and there are six of them. It’s kind of goofy that some guidebooks and websites report that Venice has seven or more districts since the word sestiere means “sixths.” It would be like claiming that the USA has 54 states because you think that Texas and Alaska are too big!
Venice is so small that I think of the sestieri more as neighborhoods than districts. There are three on each side of the Grand Canal, and three of the six were named for churches.
Castello: named for a castle that used to be in this area
San Marco: named for the patron saint of Venice and his church
Cannaregio: named for the bamboo (canna) that used to grow in this area before it was developed
San Polo: named for the 9th century church dedicated to St. Paul
Santa Croce: named for an ancient church that was demolished in the 19th century
Dorsoduro: means “hard bone” – the land in this part of Venice was higher and more solid than others.
Each sestiere is divided into parishes, and each parish has a church. At one point, Venice was divided into 70 parishes (contrade) but after the fall of the Republic, the church organizational plan was revamped and today there are 30 parish churches. Getting to know the locations of churches (and learning to recognize their bell towers) is a great navigational tool – it won’t prevent you from getting lost but it will help you recover more quickly.
The island of San Giorgio Maggiore is part of sestiere San Marco while Guidecca is part of Dorsoduro. The cemetery island of San Michele is part of Cannaregio. Murano was also part of Cannaregio until 1271 when it was granted separate community status (which the other lagoon islands have too).
There's an article by Shannon on the Slow Travel site that describes each sestiere – it’s a great resource for people trying to decide where to stay. I don’t think there’s really any undesirable area in Venice, although I don’t think I’d like to stay too close to the train station nor would I want to stay in the San Marco/Rialto corridor in high season. Too hectic. So far I’ve stayed in four of the six sestieri – I haven’t stayed in Cannaregio or Dorsoduro yet. I don't have a favorite but I really love Santa Croce and campo San Giacomo dall' Orio.
This column is all that’s left of the demolished church of Santa Croce; it’s embedded in a wall close to the Papadopoli Gardens.