California is called Silicon Valley because the majority of companies who got their start ups there were Semiconductor based in nature. They were computer chip technology driven and thus, the name silicon is represented. The name caught on when a newspaper started calling it that in 1971. It is a part of San Jose and San fransisco and surrounding areas.
Now the name is pretty official. Back in the early 1900s, the area was instead called the "Valley of Heart's Delight," which was a term of endearment denoting the myriad orchards of the region and the wide spread acres that produced lucious fruit.