'paneling' ultimately derives from English 'panel' (used as a noun meaning 'piece or section'). 'Panel' comes from Old French 'panel' and from Late Latin 'pannellus', a diminutive of Latin 'pannus' meaning 'cloth' or 'piece of cloth'.

'panel' (originally referring to a piece of cloth or a small section) passed into Middle English from Old French; the meaning broadened to denote a distinct section of material (including wood) used to cover surfaces, and the verbal form 'to panel' and the noun 'paneling' developed from that use in Modern English.

Originally it referred to a 'piece of cloth' or a small patch; over time the sense shifted from cloth pieces to general sections or panels of material (wood, metal, etc.), and 'paneling' came to mean the covering made of such panels.