The Oxford Living Dictionary makes a clear distinction between the usage of biscuit in Britain and North America:
British: A small baked unleavened cake, typically crisp, flat, and sweet.
‘a chocolate biscuit’North American: A small, soft round cake like a scone.
When I hear biscuit being used in a British context, it usually refers to a confection (what Americans call cookies). In a U.S. context, it never refers to a confection. [See also: Biscuits & Gravy]
Why did this distinction come into being?
Best Answer
A look at early (pre-1800) English dictionaries points to a possible source of confusion early in the career of biscuit. Two dictionaries—Edward Phillips & John Kersey, The New World of Words: Or, Universal English Dictionary (1706) and John Kersey, Dictionarium Anglo-Britannicum: or, a General English Dictionary (1708)—have identical definitions for biscotin:
But John Kersey, A New English Dictionary; or, A Compleat Collection of the Most Proper and Significant Words, and Terms of Art commonly used in the English Language (1713) has this very different definition for bisket:
At least superficially, the definition of biscotin might describe a type of modern English biscuit, while the definition of bisket might serve as a rough description of a modern American biscuit.
Thomas Dyche & William Pardon, A New General English Dictionary, third edition (1749) is the earliest dictionary I've been able to find that lists the spelling biscuit:
This same definition appears in editions of Dyche & Pardon as late as the eighteenth edition (1781).
Next to weigh in is Samuel Johnson, A Dictionary Of The English Language (1755), with entries for biscotin and biscuit:
From Johnson's remark that sea biscuits are baked for long voyages four times, we might conclude that a more suitable name for these items would be quadriscuits or tetriscuits. Richard Knolles, The Generall Historie of the Turkes (1603) does indeed contain the passage that Johnson quotes, but he spells the word bisket:
In fact, Knolles uses bisket five times in the course of his Historie—including this instance:
It seems clear from this instance that Knolles used the term bisket for what much later in the United States came to be called hardtack. In pioneer days, land travelers as well as sea travelers commonly carried hardtack with them on long trips. Here is the entry for hardtack in The American Heritage Dictionary of the English Language, fifth edition (2010):
Next, chronologically, in my dictionary survey comes Nathan Bailey, The New Universal English Dictionary, fifth edition (1760), which covers biscotin and bisket/bisquet:
The seventh edition of Bailey's New Universal English Dictionary (1776) further complicates the picture by adding a separate entry for bisquet:
Conclusion
The history of bisket, biscotin, biscuit, and bisquet is quite convoluted. At various times before 1800, dictionaries have used all of these words to identify a confection made with flour, eggs, sand sugar (among other ingredients). But at other times before 1800, dictionaries have applied the words bisket, biscuit*, and bisquet to tiny rounds of hard-baked bread.
Under the circumstances—especially in view of the equivocal treatment of the word in Samuel Johnson's tremendously influential 1755 dictionary, it is hardly surprising that British English went one way with the word biscuit and North American English went the other.