Huh, maybe that's why I always attached that label to the West Gash region.
I don't understand why that term is applied to those people in general. In the prophecies and a few other places, Velothi is used to refer to the Dunmer in general. Since the Chimer were never called Chimer until they actually changed, they were called Velothi back then, as followers of Veloth and not a separate race.
Possibly just words gaining extra meanings and connotations over the centuries, like 'Bohemian' or 'Vandal'. Especially as the Dunmer generally call themselves 'Dunmer', 'Houseman', 'House Dunmer', etc. Perhaps 'Velothi' carries connotations of backwardness. Veloth is a respected Saint but his old teachings aren't really followed, the Psijic Endeavour seems largely forgotten and the Daedra sidelined.
Could be self-appelation too. "We're not Ashlanders anymore, we're
Velothi." And they make such a big fuss out of it that the term is forever associated with them.
Perhaps Velothi is the term House Dunmer apply to those Ashlanders who come to live amongst them, as they are considered to have lived closest to how their ancestors once did, but those who continue to live in the Ashlands they still call Ashlanders.
Good reasoning, that one's possible too.