Indie--what used to be indie--I think, it originally was the precursor to the Pitchfork crowd....but in between the "REM as god" in the late 80's thing, and the Pitchfork propagation of modern indie.
I sort of see the late 80's/ early 90's indie band as jangling in an REM way, twee pop, etc. But somehow, I think that Pavement was the ultimate indie band....ie: Velvet Underground, HUGe Lou Reed influence, songs vaguely tossed off for the hell of it, etc. You could probably put Guided By Voices in there too....early GBV, anyways. I think the whole thing about early indie stuff was that it was done lo-fi, maybe on a 4 track (see: GBV again), real music made by real non-rock star types (also see: Helium, Cat Power, early Liz Phair, pre "Bandwagonesque"--and maybe even including "Bandwagonesque"-- Teenage Fanclub). Or perhaps Superchunk, I think they were put in that category, too (out of tune vocals, ragged jangly guitars, etc).
Then as alternative rock grew in the 90's, labels like Matador grew and expanded and got more popular and got more budgets, and the old template of what was considered indie (especially as recording technology developed), you were no longer listening to bedroom or lo-fi 4 track recordings done on shoestring budgets. On a somewhat newer scale, there was nothing really "indie" about bands like the Arcade Fire, even when they weren't known....but due to the Merge affiliation and perhaps due to rock critics' tendencies to throw around terms that bands may not even want levelled at their music--it stuck with them. "Indie" is largely a critic or record label or music bio sort of reliance now, to describe new bands that would have fit into that sort of thing way back then.
Now that I think of it, bands that could be considered "alternative" or "modern rock" in the late 80's or maybe 1991 or so (ie: Grapes of Wrath,) were thrown in that category, too.
Now that I think of it, pick up almost any Matador recording from about 1990-1994 and that's pretty much "indie". Or the initial/ old/ early quintessential version of it, anyways.
I generally hate labels (I loathe the term "post rock" just as much), but that's the best that I can describe that whole indie thing.
And I almost forgot to mention--there was a period in the early 90's where bands would stress that they were "unsigned", NOT "indie". Because indie tended to emphasize (whether intended or not) that the band was purposely straying away from the major label route. I don't know how much credibility any intentional indie thing had, because even Matador was affiliated with Warner by (or around) 1994, and Guided By Voices had eventually made records with big engineers and producers like Ric Ocasek. Even Bob Pollard said that he was "sick of this 4 track shit". He recorded on 4 track because it was all he had....alot of listeners and fans think that it was intentional, but it wasn't--he always had a big major label spirit beating through those early recordings like "Propeller", it's just that he had no budgets, no recording skills, no record label.