The majority of British place names containing -by suffixes are generally accepted to be of Norse origin, býr meaning farmstead, village or place of settlement.

edit: The word and its derived variants is still current in Scandinavian languages, by meaning "city" in Danish and Norwegian, and "village" in Swedish. Variants remain common place names across Scandinavia, both alone and in suffix form.

That's not to say that all settlements with -by names originate in the early medieval period. The word which combines with the -by suffix is as often as not of non-Norse origin. The "Whit" in Whitby might come from Norse "white", but equally likely has Old English/Anglo-Saxon origins.

For an introduction to the early development of British urban centres, including burghs, wicks and bys, I can heartily recommend Francis Pryor's excellent Britain in the Middle Ages: An Archaeological History.