The letter mainly continues Arabic ح (ḥ) and خ (ḵ). These two phonemes were merged into /ħ/ around Valetta since at least the 18th century, but continued to be distinguished as /ħ/ and /x~χ/ elsewhere. By the later 19th century, however, this merger had established itself throughout the language (thus significantly earlier than that of għ, which see).
Additionally it may continue Arabic ه /h/. This letter was mostly vowelised (see h), but as first or last radical of a root it sporadically underwent fortition instead.
The symbol <ħ> was apparently first used by Maltese canon G. P. F. Agius de Soldanis in 1746, though it was not popularised until the latter half of the 19th century and the first half of the 20th century, being officially adopted in 1924.
In contemporary Maltese, the letter ħ represents /ħ/ in all positions. Chiefly word-finally, the same phoneme may also be represented by għ or h. The actual realisation varies (by position and speaker) between [χ], [ħ], and [h]. This variation is purely allophonic.
^ Arnold Cassola (2013), “A note on the dating of ħ, għ and x in Maltese”, in Albert Borg, Sandro Caruana, Alexandra Vella, editors, Perspectives on Maltese Linguistics, Akademie Verlag, →DOI, page 16,