The second-largest country on Earth is named after a village.
In 1535, local inhabitants used the word kanata to direct the French explorer Jacques Cartier to Stadacona, a settlement near where Quebec City stands today. According to Wikipedia, Cartier then applied "Canada" to the village and to the surrounding region ruled by the chief Donnacona.
He knew what the word meant. Wikipedia quotes his own account: "They call a town Canada." The popular claim that he mistook a word for a village for the name of a country is not supported by what he wrote. The word comes from a St. Lawrence Iroquoian language that Etymonline says had died out by 1600. Several living Iroquoian languages have similar words, such as Mohawk kana:ta, "town."
The name spread because it was useful. By 1545, Wikipedia notes, European books and maps had begun to call the region Canada. For a long time it meant only the St. Lawrence part of New France. Etymonline records the word from the 1560s.
The meaning kept moving. In 1791, the colony of Quebec was split into Upper and Lower Canada. They merged in 1841 and became the Province of Canada. Then in 1867 the name was chosen for the new federation. Wikipedia says delegates at the London Conference adopted "Canada" as the legal name and "Dominion" as the title.
They had other options. John A. Macdonald wanted "Kingdom of Canada," but Colonial Office officials opposed it, partly to avoid antagonizing the United States. Wikipedia also lists rejected names including Albionoria, Borealia, Cabotia, Efisga, Tupona and Victorialand.
Other theories exist. One claims Portuguese or Spanish explorers wrote cá nada or cabo de nada, "nothing here," on maps. Wikipedia calls it unsupported, because no map from before Cartier shows the name.
The best-supported answer is a plain one. When Cartier asked where he was, people told him: the village.