A toast is a drink in honor of something or someone. It derives from customs of drinking which go back to at least the Middle Ages, if not earlier (medieval writer Geoffrey of Monmouth attributes the custom of two people drinking to each other's health from the same goblet to Saxon leaders who came to England in the 400s). Wishing someone health and happiness with a drink was an important public expression of loyalty to them in England, and later its colonies, but it did not gain the name of a toast until around 1700, due to the habit of placing toasted bread in wine or beer to improve the flavor.

One story goes that at a health resort in Bath, England, sometime in the late 17th century during the reign of Charles II, a beautiful woman was in the water with a group of admirers hanging around, and one of them took a cup of the water she was in and drank to her health. Another man joked that he would rather have the woman than the water; "liked not the liquor, but would have the toast." This story may be apocryphal, but the word "toast" for either the drink or a woman who is being drunk to (as in "the toast of the town") appears in the Oxford English Dictionary around 1700.

Doing toasts in England at that time also involved some awkwardness if the person being toasted was present. Maureen Waller's 1700 quotes a French visitor as saying English custom had two requirements of the toastee:

  1. The first is, that the person whose health is drunk, if an inferior or even equal, must remain still as a statue while the drinker is drinking...when you would drink a man's health, you should first keep your eye upon him for a moment, and give him time, if possible, to swallow his mouthful, that you may not reduce him to the perplexing and uneasy necessity of putting a sudden stop to his mill, and so sitting a good while with his mouth cramm'd with a huge load of victuals...
  2. After which, the second grimace is to make him a low bow, to the great hazard of dipping your peruke in your sauce.

Sources:
Barr, Andrew. Drink: A Social History of America. New York: Carroll & Graf, 1999.
Waller, Maureen. 1700: Scenes from London Life. New York: Four Walls Eight Windows, 2000.
http://dictionary.oed.com
http://www.bartleby.com/81/16585.html
http://www.pineconeresearch.com/Newsletter/Archives/0012/nutshell.htm
http://www.eddiecampbellcomics.com/corner06.html