Computerworld has a short piece that has some background on Red Hat's unusual name. Bob Young is quoted as saying:
"When [Red Hat co-founder] Marc [Ewing] was at university he used to name his software projects red hat -- red hat one, red hat two -- just to differentiate them from his friends. So, of course, when he started his Linux project he just named it Red Hat Linux for lack of a better term," said Young, who left Red Hat in 2005 to focus his energies on another company he founded, online independent publishing marketplace Lulu.com.
Well, nearly right Bob. This is the real story, as told to me by Marc Ewing himself some years back:
In college I used to wear my grandfather's lacrosse hat, which was red and white striped. It was my favorite hat, and I lost it somewhere in Philadelphia in my last year. I named the company to memorialize the hat. Of course, Red and White Hat Software wasn't very catchy, so I took a little liberty.
So there you have it: the company should really be called Red and White Hat.