Pilsner means "of the town of Pilsen".   Pilsen is the German name for the town to the south of Prague in the Czech Republicⁱ locally called Plzen.   It was part of the Austo-Hungarian Empire and German was the language.   Now the term Pilsner means any pale, clear lager that is well hopped with a noble variety such as Saaz and brewed in the style of beer from that town - much like Cheddar cheese can be made anywhere in the world by the Cheddaring process and can't be used as a geographical indicator.   Sadly, it is sometimes used as purely a marketing term when the beer has barely anything in common with this small brewing Mecca.

The Pilsner style came about as a combination of technologies matured together;   
 

Pilsen had a beer problem.   The local ales were not of a good quality and the town leaders got together and built a state-of-the-art brewery in the acclaimed Bavarian style and employed the Bavarian brew master Josef Groll to brew bottom fermenting lagers in his native style.   He used a kiln to make the palest malt - a new process perfected in England only a few years before.  

Coke replaced wood as the fuel to dry the malted barley, enabling a much more controlled moisture content and colour of the malt achieved.   Also the smokey flavour that went with the wood disappeared, enabling more delicate flavours from a cleaner beer to become apparent.

Bohemia (the western part of what is now the Czechⁱ Republic) was a world leader in glass making.   Drinking vessels made from glass meant that every imperfection in haze and colour could be seen.   Previously pewter or earthenware jugs were forgiving of this.   Beer was now judged on its appearance as well as its taste.

The Bavarians thought this beer was so good that they brewed it themselves and Josef Groll was in much demand to show them the techniques.   They already had beers that were lagered for many months, but this was an improvement.   The Germans called this beer Pils with the name of the town or area it was brewed as a prefix.   Some beers still show this trend today: Holstein Pils,  Radeburger Pils.