Why does ENOENT mean "No such file or directory"?

It's an abbreviation of Error NO ENTry (or Error NO ENTity), and can actually be used for more than files/directories.

It's abbreviated because C compilers at the dawn of time didn't support more than 8 characters in symbols.

It's simply “No such directory entry”. Since directory entries can be directories or files (or symlinks, or sockets, or pipes, or devices), the name ENOFILE would have been too narrow in its meaning.

For a full list of all the codes and a better description of what each one means see errno.h This is an include file that is part of the C standard library and the comments clarify what the error is about. In this case:

#define ENOENT 2 /* No such file or directory */