The word Maheshwar is a combination of two words—Maha and Eshwar. Maha means biggest, topmost, supreme and Eshwar means master, controller, Lord. Thus Maheshwar means The Supreme Lord. Shiva is known as Maheshwar for being the master of Maya-Shakti. One who controls the material world through His various powers and yet keeps the ultimate power under His control, that is called Maheshwer in Vedas. The hymns of Swetaswatar Upanishad sings the glories of this name—“Mayinam tu Maheshwarh” मायिनं तु महेश्वरः (Sweta 4/10), “Paramam Maheshwarh” परमं महेश्वरः (Sweta 6/7). It says that Maheshwar is the best of all and He alone masters over entire nature. Lord Shiva is the controller of all, whatever we find in the universe. Animate or inanimate objects are controlled by Maheshwar. Therefore Upamanyu, a great devotee of Maheshwar, says that I dislike any other discourse except Lord Shankar because all are captured by Him only.

सत्यं सत्यं हि नः शक्र वाक्यमेतत् सुनिश्चितं।
न यन्महेश्वरं मुक्त्वा कथान्या मम रोचते॥

O Indra !! it is my factual and conclusive statement that nothing is dear to me except narrations of Lord Maheshwar. The word ‘Maheshwar’ is defined in Brahma Vaivarta Puran as under—

विश्वस्थानां च सर्वेषां महतामीश्वरः स्वयम्।
महेश्वरं च तेनेमं प्रवदन्ति मनीषिणः॥

Shiva is called Maheshwar as He is the master of all, whatever exists within the universe. The Supreme Lordship of Supreme Lord Maheshwar is that He controls even the great celestial authorities like Indra etc. He is not only the master of Maya-Shakti, but he is master of all fruits and expansions of Maya (The Divine Potency). The Shruti (Vedic hymns) itself is the evidence in this regard. It says that wind blows out of His fear. The fire burns out of His fear. Out of his fear the sun and moon rotate regularly in the orbit causing day and night. This is the fear of Suprme Lord Maheshwar that the water is offering vital force to all, the earth is moving around the sun, the moon is moving around the earth, and all the planets are rotating around the sun, still nothing collides with each other. This is the miraculous power of Maheshwar. Aalwal emphasizes this name as under—

तवेश्वरत्वं त्रिजगद्विलक्षणं त्वमीश्वराणां महतामपीश्वरः।
जगत्तिरोधानकरः श्रुतीरितस्त्वं पञ्चविंशोऽपि परो महेश्वरः॥

Your Lordship transcends the significance of three worlds. Even you are the great master of many great masters. You are the cause of cosmic annihilation. You are stated by all Vedas and you are beyond to your twenty five forms which begin with the name of Chandra-Shekhar. Therefore you are called as Maheshwar.

It can be seen in the world that a ruler is also ruled by another ruler. But Maheshwar is ruled by nothing, though He is ruling everything. So He is mentioned as Mahadeva. This is the uniqueness of Mahadeva.

Sometimes he is known as Maheshwar because he quickly pervades or easily offers boon to the worshipers. There are your deities like Som-Skandha or Uma-Maheshwar, but you are beyond these deities due to your impersonal nature. Or there are five knowledge acquiring senses ( पंच ज्ञानेन्द्रियां), five working senses (पंच कर्मेन्द्रियां), five life airs (पंच प्राण), five sufferings (पंच क्लेश), fourfold inter-structural frame (अन्तःकरण चतुष्टय), and action (कर्म); and Jiva जीव-the spiritual self which falsely identifies with all these twenty five. These are forms of Eshwar and you stay beyond to all, so you are called Maheshwar. Maheshwar is worshipped to get free from the clutches of illusionary world. By the power of true knowledge Lord Maheshwar restricts the path of illusion and reveals His original spiritual form.