While fried potatoes were quite common in Europe and America during the early 19th century, no one had seen potato chips until Cornelius Vanderbilt* visited Moon's Lake House in Saratoga Springs, NY. He complained that his fried potatoes were too thick, and sent them back. The cook, George Crum*, indignantly sliced the potatoes as thin as he could, salted them, and fried them again. Vanderbilt, instead of taking offense, was delighted.

The owner of the restaurant immediately placed the item on the menu. Crum soon opened his own restaurant, featuring his creation and calling them Saratoga Chips. The popularity of these chips grew so rapidly that soon restaurants across the country were serving them. Once it became more than a Saratoga thing, the name was changed to potato chips.

*These names are rumor, but widespread rumor.
Thanks to http://www.howstuffworks.com/question579.htm