Informed, up to date, fashionable, contemporary, relevant. Being modern in dress, attitude and interests. From "hepi," meaning "well-informed" from the West African language of Wolof.
The word was probably introduced to America by slaves imported from West Africa, and was still in use in 1930's era black speech. Hip/hep probably entered the mainstream American lexicon by way of the Beatnik subculture, who believed in racial integration, listened to black music and used words borrowed from black speech.
1930s: Are you hip to the jive?
1950s: He's one hep cat.
1990s-2000s: They are terminally hip.
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