The story goes that the name comes from their version control system. When they licensed the Quake engine (the original one, not Quake 2) they started a repository imaginatively called "src" to iterate on it. As Half Life 1 approached completion that was forked into a stable branch called "goldsrc", which became a semi-official nickname for the HL1 engine, while more experimental work continued on the original "src" branch which eventually grew into... Source.