Answer by Mike Holovacs, Served in USAF 2000-2007, Munitions Systems crewchief. Six years 2W0X1, two SWA deployments and one domestic post-9/11 deployment.
Call signs are earned for dubious achievements as a joke that plays on said achievement. In his book Bogeys and Bandits, ex-fighter pilot Robert Gandt details how some of the students he followed during his time writing the book earned their call signs. One guy's call sign is "Road" because he landed an airplane on an empty stretch of highway after a malfunction. Another student pilot earned the name "Sniper" after shooting at the wrong target during a gunnery exercise.
Sometimes, call signs come from easy word associations, puns, and the like. The set of twins that are featured in Gandt's book are understandably call-signed "Heckle" and "Jeckle". The co-pilot of American Airlines Flight 11 that slammed into the Pentagon was a former F-14 Tomcat pilot, Tom "Stout" McGuinness. You get the idea. Famed aviation photographer and ex-F-14 jock CJ "Heater" Heatley would be an example of easy play on a name, despite that some say he came into this call sign thanks to an AIM-9 Sidewinder being nicknamed "Heater" by pilots.
Sometimes pop culture at the time plays a role: One of the last pilots to fly the F-14 as a demonstration pilot was named Anthony Waller, and he got the call sign "Opie" because of the radio comedy duo.
The call sign becomes your identity and essentially replaces your first name. There is at least one Quoran who uses his call sign as a first name in lieu of the real thing: RADM(USN, Ret).
Generally gone are the days of lewd or self-deprecating references in call signs. No more "Cuny" if your last name is Lingus or "Notso" if your last name is Bright.
Answer by Ryan Young, A-10 Pilot
Every community and service has its own traditions, so I will only speak for the A-10 community. I've seen a naming in an F-16 squadron, but I won't say I'm an expert at their process by any means since it seemed very odd, overly complicated, and the person being named was able to play a part in what they were called (what?).
We keep it easy: on a Friday after the new pilot (or FNG) has been in the squadron for a couple months, we'll have a Roll Call. Roll Calls should have their own story, but the short of it is: we all get together to call the roll, tell stories, recall some history, and drink.
After everyone is good and ready, we'll kick the FNG out of the room and proceed to tell stories about how he screwed up, did something unprecedented, or how his last name deserves a callsign that fits, i.e. Smith gets "Smitty", or some other appropriate match that makes sense. There was a trend of callsigns becoming acronyms, (DICE='Dropped It Close Enough), MEAT='Missed Excessively At Twelve' are a couple that come to mind) but that trend is fading and more traditional names have been used lately (Chip, Satan, Brewha, Hummer, Splash, Nightmare, etc).
We aren't as unforgiving as our Navy brethren. Their names are famously brutal, so hopefully a Naval Aviator can pipe up and give us their explanation!
There are very few rules for what a name can be, as far as it passes the "Nellis Bar Test" -- the name can be screamed across the Nellis Bar without making people wince -- and the commander approves.
After we all agree on a name by cheering for the winner, we bring the FNG back into the room, tell him/her their name, and then drink some more. As soon as you've flown in combat, or along the DMZ in Korea (a caveat necessary due to the amount of time us A-10 drivers spend doing that) your name sticks and you can't be renamed ... unless you do something that can't be overlooked. Examples are few and far between ... except for "Tucker" ...More questions on U.S. Air Force: