It is my understanding that because he lived, worked and built his guitars in Louisville, and Louisville is the home of the Kentucky Derby and unofficially known and nicknamed "The Derby City", he decided to use the name Derby for his steel guitars.
This is what he stated in a Lonnie Portwood interview in an issue of Steel Guitar World magazine.
The Louisville Courier Journal did a story on Charlie and Derby Steels somewhere around 1990 right after he started building Derbys and he told the same story there.