http://www.wisegeek.com/what-is-american-cheese.htm
American cheese in its most common form is a blend of milk, milk fats and solids, with other fats and something called whey protein concentrates. All the ingredients must meet the legal definition of cheese, even if the final result is more cheese-like. This is why many American cheese products bear the title "cheese product" or "cheese food" on the packaging.
American cheese used to be a blend of Colby and cheddar cheeses. These varieties were most popular in America, and it was invented in America, hence the name. American cheese then was sold in blocks in delis and supermarkets. It was preferred because of its milder flavor than cheddar.
With the surge in popularity of convenience foods in the 1950s, it is not surprising that processed cheese slices were first commercially available in 1950. This processed cheese soon took the name "American" and American cheese as we know it was born. "American cheese" does have a specific definition as a pasteurized process cheese, in fact.
American cheese was first popular because it melted smoothly and didn't separate when heated, as cheddar tends to do. It was great on grilled cheese sandwiches, on cheeseburgers and for use in dips and spreads. It still maintains those properties, and most people are familiar with Ro*tel® cheese dip, which uses pasteurized process American cheese and tomatoes with chiles. Kept warm in a slow cooker, this cheese dip is probably one of the most popular hot dips nationwide.
American cheese has its critics, for its fat and sodium content, colorings and other additives. It is, after all, made from the remnants of "real" cheese-making. However, it is high in calcium and protein, and is still a good way for parents to make sure their picky eaters get some kind of variety in their diets. Although disrespected by many, American cheese still has a place in American eating and cooking.