"Def" as in "Def Jams" may have come from the word "definitely", though some may disagree. If so, "def" is "short" for "Definitely great" {or some other superlative}.

See these entries from http://www.urbandictionary.com/define.php?term=def:

"def /def/ adj. to describe a person, thing, or event that is cool. archaic, circa 1981 *

"yo, mah pizzles, I got da hook-up at this def new club. It's suppose ta be off da hizzy"

-snip-

****

"Def ain't short for Deffinitly.

Def means cool, ill, dope. You know.

Yo man Bone Thugs N Harmony are one of the most def groups of all time."


-snip-

*"Archiac" means that this word isn't used anymore.

Note that in this context, "cool", "ill", and "dope" mean...."fresh", "bad", "what's happenin", "the bomb", and "off the hook".