GREAT questions, reader Steve! Butterscotch is a candy that’s made by cooking sugar to the “hard crack” stage of 300 degrees Fahrenheit. The key point of difference between butterscotch and regular candy is that at least half of the sugar employed is brown sugar. Butterscotch has no actual “scotch” in it of course, instead its molasses-y flavors are accentuated by the addition of vanilla and salt. As to how those flavors are magically teleported into a “chip” of the kind used in 7-layer bars, I have absolutely no idea.
Don’t ask me how or where butterscotch got it’s name, however. There are a thousand theories on that, all of them bogus. My advice to you on that front is to simply make up your own story. It’ll have just as much validity as all the others currently in circulation.