Its a story of 'Banyan' trees (නුග ගස / Ficus Bengalensis). At the time when Kotte was a kingdom (1412 - 1597), there was a forest of Banyan trees outside the city walls. This area was uninhabited, with an abundance of wildlife and was known as 'Nugen Egodaha' (නුගෙන් එගොඩහා / or beyond the forest of Banyan trees).
The Dutch, when they occupied Ceylon, were really focused on the construction of waterways and the labourers who worked on these projects were settled in this area used to call it as 'Nugen Egoda' (නුගෙන් එගොඩ) which is now known as 'Nugegoda' (නුගේගොඩ).
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