The earliest usage of "hootenanny" to describe a music event was in July of 1940 at Seattle's Polish Hall. It was a fundraiser for a lefty newspaper called the Washington New Dealer, whose editor was Terry Pettus. Pettus was a transplanted Indiana Hoosier, and he remembered the word from his youth. As others have noted in this thread, the older meaning was similar to a "thingamajig" or "whatchamacallit." The first event was a success, so they continued at least once a month for several years.

The earliest hootenannies were nonspecific social events, which could have been dances, singing sessions, potluck dinners or beer parties. Often some combination. If there was some visiting performer in town, they might include a stage show.

In 1941, Pete Seeger and Woody Guthrie came through Seattle, played at one or more of the regular hootenannies, and took the idea and the name back with them to New York, where the Almanac Singers started their own hoots, which continued through the 1950s. But the first use of the word to describe a music event was definitely in Seattle.

Meantime, back in Seattle, the original Hoots continued and changed from being fundraisers for the New Dealer to house parties and other music-related gatherings. The events that Don Firth described upthread had evolved from the earlier fundraisers.

This is all documented in a paper by Peter Tamony called "Hootenanny: The Word, Its Content and Continuum," which includes a letter from Terry Pettus. It was originally published in Western Folklore (July 1963). It was reprinted in a 1967 collection called "The American Folk Scene" published by Dell Laurel.