Linux, the family of operating systems based on the Linux kernel, is a portmanteau of Linus (after its creator Linus Torvalds) and x (an allusion to Unix).
Torvalds initially wanted to call the project Freax, a portmanteau of the words free, freak and the letter x:
"Honestly, I didn't want to ever release it under the name Linux because it was too egotistical," he said. "What was the name I reserved for an eventual release? Freax. (Get it? Freaks with the requisite X.)
It was actually Ari Lemmke, one of the volunteer administrators for FTP server that the project files were uploaded to, who changed the name. He didn't think Freax was a good name so changed the project name to Linux on the server without consulting Torvalds and the name stuck.
Sources: Just for Fun: The Story of an Accidental Revolutionary