How did the term "skuttlebutt" come about?

It came from the water barrels on the old sailing ships; water barrels were known as butts and had holes cut in the tops or "scuttled", hence "scuttlebutt". The word became applied to the conversations and gossips the sailors held around the barrels, and it's the slang term for such talk to this day.

fortogden.com/nauticalterms.html3 we page no longer exists

"Scuttlebutt", meaning rumour or gossip, is derived from "scuttled butt". To "scuttle" a ship is to puncture the hull or open the sea-cocks so that water enters the hull and sinks it. A "butt" is a barrel or cask, so a "scuttled butt" was a barrel with a hole cut in it to allow access to the water inside. It was placed on deck for the refreshment of the crew, and as the hands drank around it they would exchange news and views.

http://www.merriam-webster.com/dictionary/scuttlebutt

"For those wondering about the phrase itself, 'scuttlebutt' is the word for the barrel that holds the fresh water on ships. The scuttlebutt resembles today's watercooler, and has become a slang term for gossip, since much gossip is exchanged at office watercoolers."

http://www.whatsthescuttlebutt.com/

Scuttlebutt enters the electronic age:

http://www.sailingscuttlebutt.com/