Your question is a good one. I think "linear" in the amplifier sense is a term which has evolved over the years and varies in use with the type of circuit. For power amplifiers in audio and RF, people seem to use the term to mean the output is proportional to the input and ideally will be at a constant gain and in phase for all frequencies in the signal. When displaying the input and output on an oscilloscope as an X-Y display, the trace is a straight line ("linear" as in line). If this input-to-output relationship holds for all the frequencies, a square wave in will be a square wave out. A common term used is "distortion" to describe non-linear behavior. Non-linear is a bad thing.
The world of signal processing and op amp based functions is different. Most functions are implemented which, by design, do not maintain a constant gain and phase for all frequencies. There are probably many designers in this field which never use the X-Y mode of an o'scope and don't know how to interpret one. The display will almost never be a straight line. "Linear" has come to mean "continuous", "smooth" or "regular".
"Settling", as defined in the first reply, has to do with the circuit behavior near a new output value. The test used in the signal processing world which is closest to the X-Y display in the power amplifier world is to put a square wave in and see how the output settles to the constant value at the top and bottom of the square wave. The output can approach the value with an exponential behavior (as you mention) or overshoot and settle with an oscillation ("ringing"). As long as the output is continuous and smooth, the behavior is described as "linear". The use of "linear" is not intuitive, as you point out.
I would be interested to hear how others use "linear" and how they think the term has evolved.