I believe distillate refers to that which is 'boiled off' (distilled). It would probably be done under reduced pressure to lower the boiling points, but that is by-the-by.
The opposite is a residual fuel. One that may have had some parts distilled off and that is what is left.
It will contain higher amounts of tars, ash, sulphur and other impurities as far as the average modern engine is concerned. It can be used in certain types of engines which are designed for this fuel, but is often just burned for the energy content.
Distillate fuels can have wide range of different fractions, flash-points, viscosity etc. Most fuels are probably distillates - even petrol might be regarded as of this type, except it is probably produced by 'cracking' not by distillation (a subtle difference of chemical change but the similar molecule chain-length result).
The petrologists, or whatever they were/are called, simply used the terms generically and the end-users eventually picked up on their particular fraction (molecule size range, basically) and assumed that is what it was called for simplicity.
Distillate fuel was a cheaper alternative fuel to kerosene (which was probably a 'cracked' fuel).
I'm not an oil expert, but that is my view of the subject.
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