It is called softball because of the method used to pitch and the larger size of the ball. Although the ball is "hard," it is actually not wound as tightly as a baseball, so it is not as "hard" as a baseball.
Since it is slow pitch it is generally called softball. There is also fast-pitch softball, but because the same type of ball is still used, it is only classified by whether it is slow-pitch or fast-pitch.
I've watched women's fast-pitch softball and it's definitely not for the faint of heart. Jenny Finch has receive the most attention in the sport. I've seen her pitch to Major League Baseball players and they had great difficulty trying to hit her pitches. Granted it's a very different game, in that in fast-pitch softball, the pitcher is able to give "rise" to the fastball unlike in overhand baseball, the fastball are sinking. Nevertheless, fast-pitch softball is tough and I admire the women who play it.