I've heard that the term firmware comes from it being between hardware and software. I have also heard that it refers to software that comes from the firm (company) that builds the hardware.
When was the term first used and what is the origin of the term?
From Wikipedia:
The term "firmware" was coined by Ascher Opler in a 1967 Datamation article. Originally, it meant the microcode – contents of a writable control store (a specialized small area of RAM memory), which defined and implemented the computer's instruction set....Firmware has evolved to mean almost any programmable content of a hardware device, not only machine code for a processor, but also configurations and data for application-specific integrated circuits (ASICs), programmable logic devices, etc.
http://en.wikipedia.org/wiki/Firmware#Origin_of_the_term
Firmware
Origin of the term
The term "firmware" was coined by Ascher Opler in a 1967 Datamation article.[1] Originally, it meant the microcode – contents of a writable control store (a specialized small area of RAM memory), which defined and implemented the computer's instruction set. The firmware could be reloaded if needed to specialize or modify the instructions that the central processing unit (CPU) could execute. As originally used, firmware was contrasted with hardware (the CPU itself) and software (normal instructions executing on a CPU). It was not composed of CPU machine instructions, but of lower-level microcode involved in the implementation of machine instructions. It existed on the boundary of hardware and software, thus the term firmware.
Later the term was broadened to include any type of microcode, whether in RAM or ROM.
Still later, the term was again broadened in popular usage to denote anything ROM-resident, including processor machine instructions for BIOS, bootstrap loaders, or specialized applications.
When it comes to the subject of updating the firmware to a new version, a typical procedure until the mid 1990s, was to replace a storage medium containing firmware, usually a socketed ROM. Nowadays, this approach is largely abandoned in presence of firmware's capability to overwrite itself in a convenient, purely electronic operation.