This is a term used to mean various things, but is considered mildly offensive when referring to people - generally use "Scots" for people and "Scottish" for everything else. Whisky is usually not referred to as "Scotch" - see note on whisky.
Historically, the word was widely used in Scotland as a adjective meaning the same as "scottish". In fact, it was not until ~1925 that the Scotch Education Department became the Scottish Education Department.
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