The word already existed in English. It means a mixture, used to refer to spices or similar but also to various mixed cotton or wool fabrics. It is derived from the identical French mélange from mêler (mix).
In Dune, there is only one source of the spice Melange, the planet Arrakis (colloquially known as 'Dune'). Melange is a geriatric drug that gives the imbiber longer life, greater vitality, heightened awareness, and some measure of prescience, depending upon the dosage and the consumer's biological makeup.
Yet Melange is truly a drug: it is physically addictive (as evidenced by the total blue in blue eyes of the spice addict), and stopping its consumption causes death after a painful period of withdrawal. Due to its rarity, the group controlling spice production on Dune controls the fate of the universe.
The steersmen of the Spacing Guild take Melange for the heightened awareness and the prescient ability to see safe paths through space, allowing them to navigate the gigantic Guild Heighliners between planets. They exist literally within a cloud of Melange in a tank, and the extended exposure to it warps their bodies.
The Bene Gesserit use the spice for the ritual known as the Spice Agony, an ordeal in which an acolyte takes a massive overdose and confronts her inner self and the selves of all her female ancestors. If she masters the confrontation, she emerges as a Reverend Mother, a Bene Gesserit of terrifying abilities, fully in command of her Other Memories (the collective egos of her female ancestors.)
The spice is the product of sandwormss. Collecting it is hazardous in the extreme, since any activity on the desert surface of Dune attracts the worms, which are extremely large and dangerous. Thus, the mining operation is essentially vacumning it off the surface until a worm comes, when a carryall will lift the mining vehicle to safety. The Fremen, who have learned to co-exist with the sandworms in the desert, also harvest the spice manually.
Spice is in general use all over the universe as a sign of wealth. To ingest it is the ultimate sign of conspicuous consumption.