This may be apocryphal, but it sounds good anyhow...
My high school Latin teacher had an etymology for this magic word. According to him, it derives from the phrase hoc est corpus -- "This is the body", spoken during the Catholic Mass at the moment of transubstantiation. The average peasant in the back of the church, not knowing a lick of Latin, just knows that something important and magical is going on when the priest holds up the Host and speaks these words. Over time, the phrase is corrupted into "hocus pocus", while retaining its association with magic.