With the startling frequency that this word is used as pseudo-English, especially by (Western) otaku, I thought it might be interesting to look at the modern Japanese definition and usage. (That and I am addicted to Koujien.)

Contains Japanese characters in Unicode, with transliteration in romaji.

かわいい kawaii

keiyoushi (adjective)

kawayui no ten. kawaii wa ateji.
Originated from "kawayui". "kawaii" (written in kanji "possible" "love") is a phonetic substitute, or ateji.

1. いたわしい。ふびんだ。かわいそうだ。
iwatashii. fubin da. kawaisou da.
santaishishuu: "banmin no kokotsu to naritaru wa kawaii koto de wa orinai ka."
Pitiful, poor (little), unfortunate.
"Are the skeletons of these thousands not a pitiable sight?" (Santai Shishuu)

2. 愛すべきである。深い愛情を感じる。
aisubeki dearu. fukai aijou wo kanjiru.
"kawaii waga ko" "kawaii koe de utau"
Something that one should love. Something that evokes a feeling of deep affection or fondness.
"our lovely child" "sing in a sweet voice"

3. 小さくて美しい。「かわいいスズランの花」
chiisakute utsukushii. "kawaii suzuran no hana"
Small and beautiful. "The pretty lily-of-the-valley blossoms"
Source: Koujien 5th ed. Impromptu translation by me. This is a CST Approved use of copyrighted material.

In my experience, actual usage includes meanings such as "my dear ..." or "my precious ...". Sadly, I haven't access to Yubiwa Monogatari, the Japanese version of The Lord of the Rings, to confirm my suspicions.

gn0sis pointed out that the ateji likely comes from the (Mandarin) Chinese keai. Propz!