The short answer: DUMBO stands for
“Down Under the Manhattan Bridge Overpass”
According to Crane Davis, a writer and producer who lived in the neighborhood from 1976 to 2006, he was part of the “naming committee” in 1978:
A naming committee consisting of Selby Beebe, Crane Davis, Monte Davis and John Donovan was appointed. After much sitting around and drinking beer, to a point where none of us could remember who had suggested what, we came up with two alternatives:
DUMBO: Down Under the Manhattan Bridge Overpass
DANYA: District Around the Navy Yard Annex
The choice was presented to the community at a huge loft party and the results weren’t even close. It was DUMBO by a landslide. Everyone agreed that it had just the right kind of Dadaist anti-marketing positioning to protect our turf from developers: who, after all, would spend a million dollars for a loft in a place called DUMBO?