But the terminology and "legalese" changed at some point.
Terminology, as used by the general public, yes, legalese no.
In the 1980s or early '90s, free-to-use-and-modify software was referred to as "Public Domain". It basically means the author gave up all copyright. The modern term "Open Source" was not used back then, to my knowledge.
No, yes, err, this is a mixup of different concepts. Public Domain and Open Source are neither the same nor interchangeable. In fact, they are in some variants the exact opposite. And your question feels as if you also mix in the idea of Copyleft.
So let's first look at the items before answering the historic part.
Public Domain is a basically US legal term (though similar concepts are in many legal systems), describing that some piece of work is free from any rights and can be used without any restriction. (Software-) Items in the Public Domain do not have to be available in source. They can as well be just binary.
In addition, the Free Software mentioned is again none (or any) of the above. "Free" is not an in-itself defined term here, but more of a concept - one easily misunderstood, as it's about freedom to use, not free as in free beer.
Open Source at the core just describes the fact that the source code of an application is available. It can be available to everyone or just for a restricted user group. It doesn't have to be free at all. In fact, GPLed Source isn't free, its protected by freedom restrictions. Then again, it's also a name coined to remove the ambiguity of 'Free'.
Copyleft is the idea to use the copyright system to keep (software-) items open and return every change made back to the public. Copyleft is the exact opposite of public domain. GPL is eventually the best known variation. It only works because the item licensed via GPL is not in the public domain (*1).
Terminology is of course changing, especially when some area is new and in rapid development - do I hear software? In the beginning people tend to use well known terms, and "Public Domain" is one such. Programmers with no intention to sell put their works out into the Public Domain, binary only as well as some including source code - if the language used even made this difference at all.
Giving a work into Public Domain means giving up all rights. So others can take this, modify it (or not at all), and resell the result.
Not everyone wanted to give up all rights, so the idea of various kinds of Free Software were conceived.
Some (aka RMS) wanted to take that even a step further to secure freedom of use by using the copyright system to protect this freedom. Thus Copyleft was born - and GPL is the prime license to protect Free Software.
While the basic idea did gain a strong following, the term 'Free' was way too easily misunderstood - and also repelling to any commercial/professional usage. So the Open Source term was used by people promoting professional use. A term RMS fought, as it allows others to use it without guaranteeing the freedoms he envisioned. (*2)
These fights over the right naming were quite active during the late 90s into the mid naughties, when most settled for FOSS (Free Open Source Software) as compromise. Somewhen in the 10s this got extended to FLOSS (Free/Libre OSS) to make it even more clear that it's about freedom, not free beer.
The good side of this fight was that OSS is now a term not only known by some insiders, but known and used by a majority of developers and distributors and anyone reporting about such. As a result OS(S) has reached the general public, far beyond the usual circles.
Well, and amidst all of this is the common man with his need to use a term describing what he wants, a term that can easily be used and understood. Not an easy task, as reading the fine print is still an issue.
Using OSS might as well be just an intermediate step (*3).
*1 - The usage of copyright to protect Copyleft results in a great twist: When the copyright expires, it will move into the public domain. I really would love to see what's happening then. But thanks to Mickey Mouse this day may never happen - or at least so far in the future that I won't live to see it :(
*2 - Notably, MS with various initiatives to 'open their sources' without giving real freedom to modify and redistribute.
*3 - Hopefully one where the crap about IP gets removed as a whole -
You may say I'm a dreamer, but I'm not the only one, I hope someday you will join us, and the world will be as one.