Not being widely read in the history of the sport, I suspect Allan is correct in that flies were first called such because they represented insects. But the meaning of words change with common usage and 99% of flyfishermen and women would call a San Juan worm, a Y2K or a Royal Wulff a fly even though they do not represent an insect.
Personally I enjoy making "flies" that look like little frogs and cause bass launch through the surface to attack them Not a fly, I don't really care, it's great fun.