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This is what I recall... (I was a high school kid at the time)
There are two aspects. First the new ceramic high Tc superconductors could be cooled with liquid nitrogen - this is much cheaper and easier to obtain (and handle) than liquid helium. This should make superconductor applications more practical. It did, but not as much as many people hoped. A ...
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My guess for the Z
From THIS Germain-English dictionary, we see that "Figure of merit" in German could be
Gütezahl $\qquad$ or $\qquad$ Leistungskennzahl
in electrical engineering. So probably the letter Z is for Zahl, the German word for "number".
[moral: use Google translate with a grain of salt]
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The concept of the thermoelectric figure of merit and the abbreviation ZT were introduced by the Russian physicist Abram Fedorovich Ioffe in 1949, so I assume the acronym originates from Russian. However all the references I can find are behind paywalls so frustratingly I cannot tell you how ZT is derived.
If your university has access to it, Ioffe's book ...
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