- sound represented in Old English by -sc- (e.g. fisc "fish"), which originally was pronounced "-sk-" but which by late Old English had softened to "-sh-." Modern words with -sc- mostly are foreign (generally Scandinavian) imports.
The "sh" sound did not exist in Old French, therefore French scribes after the Norman conquest often represented it with -ssh- in medial and final positions, and sch- in initial positions. The spelling -sh- has been standard since Caxton, and probably is a worn-down form of Middle English -sch-.
In some East Anglian texts from 14c.-15c., x- is used (e.g. xal, xulde for shall, should), which would have given the language a very different look had it prevailed, but the London-based sh- ended up as the standard form.