Friends, what we’ve got here is a two-tone western pattern t-shirt (what?) adorned with a glitter outlined Boris Vallejo iron-on transfer and fuzzy blue iron-on letters that nearly, but not exactly, match the blue “collar.” Do we think Toad refers to the original owner’s level 15 halfling thief? Other theories? I’ll tell you what: if one of the below illustrations—glitter outlined, naturally—graced the back of the shirt under the word in question, I would buy the fucking thing and eat Top Ramen for the rest of the month.
Another homemade D&D t-shirt here.
(T-shirt images via eBay seller I HEART Danger Vintage; giant toad images via Zenopus Archives)
2 Warps to Neptune 
When I was a kid, Toad was pretty much the default nickname for anyone named Todd.
That is interesting.
Hey, you asked for theories..
I was being serious! I hadn’t thought of that.
Guess what. I just Googled “remember those iron-on letter stores in the mall eighties” and that D&D shirt was first in the images list.