Back in the 30's, the heyday of "O" gauge, model railroaders began searching for a smaller scale that would take up less space but retain the advantages of detailing and the heftiness of modeling that O afforded. To them HO was too small and so it was generally conceded that a more desirable gauge would be found somewhere between O and HO, thus the 3/16" scale came to be. So it turns out that 1:64 scale trains were first made in England during the early 30's.
During its infancy 3/16" model railroading became known as "C-D" which originated from the term "Cleveland-Designed," a trademark of the Cleveland Model & Supply Co., the first U.S. company to produce a significant amount of 3/16" scale products back in 1937. In 1937 he began marketing 3/16" scale wood and embossed paper kits. A year later he marketed two powered locomotive kits -- a CGW 4-6-0 and a PRR 0-6-0 switcher. These, along with his wood-and-paper Milwaukee Hiawatha train, are in great demand by S scale collectors. Some years later, the National Model Railroad Association (NMRA) recognized the scale and renamed it "S" because of the sibilants in three-sixteenths (scale) and seven-eighths (gauge). Ed Packard, owner of C-D Models, featured his trains at the Chicago Worlds Fair. A.C. Gilbert saw them there before he acquired the American Flyer line of trains.
At a subsequent 1942 NMRA meeting the designation "S" was formally adopted for 3/16" scale model railroading. It is thought that the "S" was derived from words such as Seven-eighths in the track gauge or three-Sixteenths in the scale. Of course S scale has come a long way since then and is now enjoying a renaissance in production.
S gaugers are a diverse lot. Some of us are tinplaters, some hi-railers and others scale modelers. Tinplaters collect and operate American Flyer S gauge trains. manufactured by the A.C. Gilbert Company of New Haven, Connecticut from 1946-1966, American Flyer is often considered synonymous with S gauge. In fact many of us started out as youngsters whose dreams were fulfilled when that American Flyer train appeared under the Christmas tree. Unlike the competitor O gauge Lionel, American Flyer trains operated on two rail sectional track. Operating accessories, realistic "choo-choo" sounds and smoking steamers were characteristic of American Flyer. Today many S gaugers still operate their old reliable American Flyer trains either out of nostalgia or for the sheer fun of it all. Still others are collectors of the highly prized items found stored away in attics or passed down from one generation to the next. Indeed, American Flyer has been a name to be proud of.
* The above information was found at: http://trainweb.com/nasg/