1. The town is named after Dena'ina Athabascan Indian Chief Wasilla. The meaning of the word “Wasilla” itself isn't certain; it may mean "breath of air" in the Dena'ina Athabascan language.
2. An alternative theory: It’s a variant of "Wassily," the Russian form of “William.” (Alaska was part of the Russian Empire until 1867, when the United States government purchased it for 2 cents per acre. The transaction was derided as "Seward's Folly," after the U.S. Secretary of State who negotiated the deal.)
Other facts about the little town on the tundra, home to Alaska Governor Sarah Palin and the First Dude, at the official Wasilla website.