It is one of three insular Scandinavian languages descended from the Old Norse language spoken in Scandinavia in the Viking Age, the others being Icelandic and the extinct Norn, which is thought to have been mutually intelligible with Faroese.
In the beginning, the language spoken in the Faroe Islands was Old West Norse, which Norwegian settlers had brought with them during the time of the landnám that began in AD However, many of the settlers weren't really Norwegians, but descendants of Norwegian settlers in the Irish Sea.
Between the 9th and the 15th centuries, a distinct Faroese language evolved, although it was still intelligible with the languages within the realm of the Norwegian Viking Empire spanning from Norway Greenland and parts of North America.
Derived from Proto-Norse and Old Norse, they are spoken in the three Scandinavian countries (Denmark, Norway, and Sweden), the Faroe Islands, Iceland and (to some extent) Greenland, as well as by a significant Swedish minority in Finland and by immigrant groups mainly in North America and Australia.
One witticism about Norwegian that expresses the basic similarities and differences between the languages is that "Norwegian is Danish spoken in Swedish." The relationships between the three languages may be summarized by the diagram above.
Even if the language policy of Norway has been more tolerant of rural dialectal variation in formal language, the prestige dialect often referred to as "Eastern Urban Norwegian", spoken mainly in and around the Oslo-region, can be considered to be quite normative.