Initially, Demos means "Village" because it refers to the first step of democracy. The Athenians had a voting district, it was referred to as the "deme" and administrated the Assembly List. In order to qualify for the Assembly list, 18 year old males would have to prove to a political official from their voting district (the "deme") that they are NOT slaves and come from Athenian parents. Thus, they had to be native born citizens in order to enroll.
Secondly, Demos means "People" because it directly symbolizes the people of Athens