I've always thought they were the same. Tonight I noticed a slight taste difference as compared to caramel when I had some "butterscotch" for the first time in a while. Now my assumptions have been thrown to the wind. Is butterscotch essentially caramel plus some liquor?
Butterscotch and caramel are very different things. The taste difference between the two is far from 'slight' in my opinion.
Caramel is typically made with granulated sugar, milk and/or cream, butter, and sometimes vanilla. The primary flavors of caramel are the sugar and milk/cream.
Butterscotch on the other hand is made with brown sugar. It's primary flavors are brown sugar and butter. It typically also contains milk/cream but they are not as prominent as caramel.
Toffee is butterscotch that has been cooked to the hard-crack stage.
There is no liquor in butterscotch.
There is a lot of leeway in what things get called caramel, butterscotch, and toffee. The important differences to keep in mind are that caramel is made with granulated sugar, whereas toffee and butterscotch are made with brown sugar and much more butter.
The names are used for different stages of caramelization of white or brown sugar:
Butterscotch = caramelized brown sugar 239°F-257°F (115°C - 125°C)
Toffee = brown sugar caramelized to hard crack stage 302°F-320°F (150°C - 160°C)
Caramel = white sugar heated to the point it browns, which starts at 338°F (170°C)
The -scotch in the butterscotch has nothing to do with alcoholic drink and the Wikipedia lists a few theories of why it has that name.