Many years ago when this project was first started, it was called "GTK+ AOL Instant Messenger." AOL naturally complained, and Mark Spencer changed the name to "Gaim." AOL was appeased, and no one really ever heard of it because there were very few users back then.
After a long, and unfortunately secret debate, they settled on the name "Pidgin" for gaim itself, "libpurple" for libgaim (which, as of 2.0.0 beta6, exists), and "Finch" for gaim-text.