The word is a contraction of the old-Saxon word wer (which means "man") and wolf -- werwolf, manwolf. A Lycanthrope, a term often used to describe werewolves, however, is someone who suffers from a mental disease and only thinks he has changed into a wolf.
The concept of werewolves, or lycanthropes, is possibly based on the myth of Lycaon. He was the king of Arcadia, and in the time of the ancient Greeks notorious for his cruelty. He tried to buy the favor of Zeus by offering him the flesh of a young child. Zeus punished him for this crime and turned him into a wolf. The legends of werewolves have been told since the ancient Greeks and are known all over the world. In areas where the wolf is not so common, the belief in werewolves is replaced by folklore where men can change themselves in tigers, lions, bears and other fierce animals.
In the dark Middle Ages, the Church stigmatized the wolf as the personification of evil and a servant of Satan himself. The Church courts managed to put so much pressure on schizophrenics, epileptics and the mentally disabled, that they testified to be werewolves and admitted to receive their orders directly from Satan. After 1270 it was even considered heretical not to believe in the existence of werewolves.
The charge of being a werewolf disappeared from European courts around the 17th century, but only for the lack of evidence. The belief in werewolves, however, did not completely disappear. In Europe after 1600, it was generally believed that if there were no werewolves, then at least the wolf was a creature of evil. This resulted in an unjustified and negative image of the wolf; an image that most people still have today.