The name is a play on two words: the first 'lao', said with a different tone, means alcohol, and the second means Lao, so it reads roughly as 'Lao liquor'.
Steamed sticky rice is fermented, then distilled in small village stills into a strong, usually clear spirit. Villages on Champasak's Mekong islands run their own small-batch stills, selling it by the bottle at local markets and roadside stands.