Hi,
Karabakh Khanate was established in mid-XVIII century by a warlord of a
Turkic Dzhevanshir tribe, that migrated to the Kura-Arax angle some years
prior from the Mazendaran region of Safavid Persia. Establishment was
favored by a power vacuum in the region: Persians withdrew largely due to
the Civil war, Russians were still trying to push over the 'Cherkess'.
City of Shushi was built in around 1750 by Panakh Khan Dzhevanshiri and
his ally Melik Shahnazar of Varanda (Armenian), as Khanate's capital.
Khanate lasted until 1800s, then taken over by Russia. Area of p.-d.
Stepanakert became Khan's summer residence, hence Khankiand, or Khanshen
in Armenian version (there is still an Armenian village of Khnatsakh in
the area). Stepanakert as a city came into being in 1930s, and was
further expanded in 1950-60s. It is a new city (relatively) and it
deserved a new name. Khankiand is no more.

Emil'

PS: during my last visit there, some (only some) were talking about
changing the city name to Artsakhavan, but I doubt this idea has much
support.