Toponymy

The word Nepal is derived from Nepa (नेपा:); the old name of Kathmandu valley was Nepa in Nepal Bhasa, the language of Newars, who were the early inhabitants of the valley, long before the unification of Nepal. The fact that Nepal Sambat, one of the three main calendars of Nepal, existed long before the unification of Nepal proves this historical fact.
Other toponym theories include:
"Nepal" may be derived from the Sanskrit nipalaya, which means "at the foot of the mountains" or "abode at the foot", a reference to its location in relation to the Himalayas. Thus, it may be an Eastern equivalent of the European toponym "Piedmont."
It has also been suggested that the name comes from the Tibetan niyampal, which means "holy land".
A third theory suggests that Nepal came from compounding the words NE, which means wool, and PAL, which means a tented house; a long time ago, Nepal used to produce a lot of wool and the houses were used to store the wool - hence the word NE-PAL.
The name Nepal is also supposed to be derived from the Sanskrit word "NEP"(नेप), with the suffix "AL" (आल) added to it; though still under controversy, NEP were the people who use to be cow herders - the GOPALS (गोपाल) - who came to the Nepal valley for the first time from the Ganges plain of India.
According to Nepali scholar Rishikesh Shaha, the ancient chronicles report that a sage (muni) named Ne became the protector (pāla) of this land and the founder of its first ruling dynasty. The name of the country, Ne-pāla, therefore originally meant the land 'protected by Ne.'