It seems that the word became popular in its current sense, because the modernist movement, very influential in the early twentieth century, needed a term that they could use to dismiss people who criticized the modern economy, modern architecture, and so on.
If you look at the writing of that time, you will see that modernists were willing to use the most wildly utopian models from the future, but criticized anyone who used any model from the past. The best known futuristic model is the communist ideal of the early 20th century, with its belief that industrialization would bring utopia, but similar ideas were widespread in literature, art, and architecture.
Now, to me, it seems obvious that we should choose which models to use on a case-by-case basis, thinking about which does the most to enhance our well-being in each case - rather than automatically rejecting the past in favor of "progress" or automatically rejecting the future in favor of tradition. And we obviously shouldn't let an empty catchphrase like "nostalgia" stop us from thinking about which model is best in any given case.
For example, I live in an Edwardian house in a neighborhood that was laid out more than a century ago, because I think it is better to live in a neighborhood where you can walk or bicycle to shopping and other services, rather than living in a neighborhood built around freeways and shopping malls. But I have installed high-tech energy-conserving heat pump for heating and on-demand water heaters.
The house originally used coal for cooking and heating. I am certainly not nostalgic for the days when this house was built, when everyone used coal as their main fuel and when women did not have the right to vote.
But I think we can learn some things from those days, if we are willing to think about them on a case-by-case basis, so we can avoid what was bad about them but imitate what was good about them, such as their ability to build walkable neighborhoods.