Indeed, it is basically a loosening of the original meaning "Roman-like, of Romans, of Rome, etc" so that it eventually no longer means what the word itself literally specifies, but metaphorically generalizes much beyond, and then just seems more or less to mean "tale". From there it is logical to imagine how it may be stretched further to mean "novel".<pre></pre>
The various cognates of "romance" in the Romance languages were the term for the local Latin-derived (but not Latin) languages. Tales of chivalry and romance (in the current sense) were in Romance rather than Latin, and the language name expanded to include the genres written in it.
Romanice - pronounced early on as [ro'ma(:)nitse] in vulgar Latin or Lingua Rustica Romanica. In the eastern parts (including Italy), romanice was pronounced like in Italian - [ro'ma:niche], like the word church. That's what I think...
There is no way that western Romance languages had the same use of c before e and i as in Italian or Romanian. It is common knowedge that TS was a very widely used pronunciation of Medieval and vulgar Latin. Gaius Iuuulius Tseeesar printseps imperaator romaanus.... BTW I am well versed in most usual Latin pronuncations.