As an adjective, it means most important or main. As a noun, it can mean the head of a school, or the original sum of money invested or lent, not including interest.
From Latin *principalis* meaning 'chief' or 'first in importance', from *princeps* 'first, leader'. It came into English through Old French, keeping the idea of leadership or main status.
Your school principal is literally the 'principal person' there—the main one. In finance, 'principal' money is the main amount, and interest is the extra that grows on it. The word keeps pointing to the core piece that everything else depends on.
Complete word intelligence in one call. Free tier — 50 lookups/day.