1) Arya means "Noble" or "brave and noble" in sanskrit: I am sure im many languages across the world it means something similar.

http://en.wikipedia.org/wiki/Aryan

similarly Vanar doesnt mean monkey...it means Van-ar people of the forest (forest=van)...

2) Why they took the word and turned it into a race I have no idea... but it caught on... people bought it... You think the Hindu sacred symbol Swastika for Nazi party was fluke?