A butte is formed by erosion when a hard caprock overlies a layer of less resistant rock that is eventually worn away. This forms an isolated hill with a very steep incline. They are generally located in deserts.
2 Additional Answers
A butte is formed when there is erosion that carries all of the dirt to one spot depositing the dirt to the ground which causes build up which is the butte.
Buttes are made by erosion. When there is a hard rock top in the center of many layers of softer rock, eventually the soft area will get worn away and leave just the butte. You can find more information here: http://en.wikipedia.org/wiki/Butte#Formation