From NHL.com:

The Canadiens / The "Habs"
In 1924, Madison Square Garden owner Tex Rickard was falsely told by someone that the "H" stood for "habitant", a French word that in those days was used to denote the farmers of Quebec.
Rickard was told that the French players on the team came from the farms and that they were therefore "habitants" or "habs". At the time, the Canadiens were recognized as the French team of Montreal as opposed to the Montreal Maroons, the English team.

On a side note, the Montreal logo of the C wrapped around the H stands for Club de Hockey Canadien. In 1917, at the founding of the NHL, the Canadiens changed their name to that from the previous Club Athletique Canadien.


I am not going to get into an argument over semantics right now.