Well, "sci-fi" has generally been a much looser term than "science fiction" or "SF," since it's more of a pop-culture and mass-media label, and the lines have long been far more blurred there.
Anyway, the network's title has never been intended as a mere functional description of its content. The reason they originally chose "The SciFi Channel" as their name rather than "The Science Fiction Channel" was because they wanted something that was more of a distinctive brand than just a description, since they were always open to showing fantasy, horror, and other types of entertainment than just science fiction. The change to "Syfy" is taking it even further -- not only is it is a unique label, but it's one they can trademark. (I suspect the same reasoning is behind the Sleuth network's recent name change to the rather ridiculous "Cloo.") What it literally means is beside the point; it's about creating a recognizable brand identity.