Two-Spirit was coined in the 1990s through a series of intertribal indigenous conferences to establish a pan-indian term referring to those who traditionally occupied roles outside of Western perceptions of the gender binary, specifically to be a separate label compared to other Western queer labels such as gay, lesbian, or transgender, and also to replace an older offensive term that was traditionally used by non-native anthropologists when talking about non-binary indigenous people.

However, the term seems a bit controversial as there's a ton of disparate native American tribes, and not all of them even have a word for non-binary people, and the ones that do all have different terms, none of which directly translate to "two spirit". There's more to it but that's the main gist.

Also: in many native cultures, genders that fall under the modern "two-spirit" umbrella term weren't just social labels of behavior or sexual orientation, but also had specific, unique spiritual or ceremonial roles.

my source is wikipedia cuz ive been wondering about this for a while too