It's hard to say what Cipsoft had in mind when they named the paladin, and I couldn't find any interviews or news articles about it. But to follow up on what Tynusiiaa wrote, we know that Cipsoft took a lot of inspiration from Dungeons & Dragons and the classic pen and paper games when making Tibia. Dungeons & Dragons is probably also the reason we have the famous paladin trope as we know it today, a holy warrior combining aspects of both a warrior and a cleric.
When you read the information on tibia.com about vocations, this is how Cipsoft describes a paladin: "Paladins, too, are gifted melee fighters. Their ability to train melee skills is second only to that of knights. Also, they know how to handle shields very well, and experienced paladins can block most enemies even though they are not as resilient as Knights." ... "They are also magic users of considerable skill who have an impressive range of spells at their disposal. Even though their magic skill cannot be compared to that of pure magic users such as druids or sorcerers, paladins have access to many additional spells because they can use a large number of runes."
Sounds familiar, right? It certainly has a resemblence with the balanced class of paladins in DnD, combining the strengths of a warrior but with the abilities of a mage/cleric. This is what a paladin in Tibia is, you can carry heavier armor but you're not as sturdy as a knight, you can heal and wield magic, but you can't heal as well as a druid. In recent years the paladin class of Tibia has also been given a lot more characteristics of the pen and paper-paladin, such as curing curses, holy spells and having an advantage when fighting undeads.
Now, the classic version/trope of paladin, which we probably also have Dungeons & Dragons to thank for, often appears as the "knight in a shiny armor", but nowhere is it stated that a paladin has to be a knight. This trope is probably also the reason as to why the paladin is so heavily associated with swords and maces, although there is nothing in the legends that confirm the use of these weapons. And even though it's the most common weapons for paladins in games today, there are other games besides Tibia that chose a different path: in Guild Wars the paladins fight with spears, and in Fire Emblem the paladin is a mounted unit.
As I said, it's hard to know what Cipsofts intentions were when they named it paladin - and as this isn't an opinion based question I won't speculate too much about it. I do think that paladin was a great choice for a balanced class, if based on the pen and paper-paladin. In the old days I would probably have agreed that paladins should had been named hunter or archer but today, with the addition of more typical paladin-characteristics such as holy spells, I think it's a perfect name I also think it adds a lot more flavour to the story; rather than being a simple hunter or archer, you're a paladin who has sworn to destroy all evil. Also, I like the fact that Cipsoft took a well establied trope and did something unique with it, made it their own paladin, when they could have gone the simple route and copied most other games.
Edit: Typos, oh so many typos.