From Jamie Fitzpatrick,
Your Guide to Hockey.
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A. Habs is an abbreviation of "les habitants," the informal name given to the original settlers of New France, dating back to the 17th Century. So it's a natural fit for the The Montreal Canadiens, established in 1909 and marketed as a French-Canadian hockey team.

Having said that, the nickname might have been the result of an error. According to NHL.com, the first man to refer to the team as "the Habs" was Tex Rickard, owner of Madison Square Garden, in 1924. Rickard apparently told a reporter that the "H" on the Canadiens' sweaters was for "Habitants." Not true. The distinctive C-wrapped-around-H logo stands for "Club de Hockey Canadien."