The name joins a person with a place: sea-maid.
Middle English mermayde joined mere, sea, with mayde, maid. The spelling changed, but the name's two-part construction is still close to the surface.
Sources
- Merriam-Webster: mermaid
Word History and Kids Etymology give mermayde, its components and the older ancestry of mere.
- Online Etymology Dictionary: maid
Also built on maid: bridesmaid, milkmaid.