Spain is a "country of countries", formed by several provinces with their own languages. The language you refer to as Spanish or Español is originally from the province of Castile and is the lingua franca of Spain. The official name is "español", but one could argue that "castellano" is more accurate. Several provinces (specially those with their own language) have very hard feelings for this language as the very long dictatorship of Francisco Franco prohibited any other languages from being spoken, and they feel their cultural identity was being destroyed. Now some of these provinces want independence from Spain or at least have some movements to protect their cultural identity as separate from that of Spain and encourage the use of their own language. In those provinces the term "castellano" (or actually the translation of that word on their own language) is preferred over "español". In Latin America it´s only a matter of use. No one will give you strange looks or be offended if you say "español" instead of "castellano"

I think it's the other way around. Castellano comes from Castilla (Spain) and refers to Spanish from Spain whereas 'español' refers to universal Spanish (from Spain and America).