Interesting question. I can't say I'm qualified to give you an overview of the linguistic nuances and evolutions, but I thought it might be interesting to talk about the origin of the confusion surrounding the terms.

You see, if we look at just the literal meaning of the words socialist and capitalist, the type you'd find in a political science textbook, there's no confusing the two. Although both systems are at best vaguely defined, the core bits everyone agrees on are mutually exclusive between the two - intentionally so. A thesis and an anti-thesis, if you will. If we're being strict, there shouldn't be any confusion between socialism and welfare capitalism (or: social democracy). But obviously, there is and I think it goes beyond questions about prescriptivism and popular usage versus academic usage.

To find the origin of this confusion, we have to go back to the start of the socialist movement in Europe. I'll be speaking mainly from my experience with Belgian political history, but the general outline I'll be sketching will broadly fit the other European welfare states as well - even though there will be clear differences in the timeline and in the specifics. Generally, the socialist movement in these countries started out as broad, heterodox movements based on the writing of various political philosophers, most notably obviously Marx and Engels. These movements consisted out of a wide spectrum of approaches to the general socialist philosophy - utopian socialism, agrarian socialism, christian socialism, (revolutionary) Marxism, unions, cooperatives, and so on. These approaches were different ways of translating philosophy into practice which resulted in very different strains of socialism - yet all were undoubtedly socialism.

And it's from a coalition of these various approaches that the first socialist parties were formed. And just like how the general socialist ideal was translated into reality in various ways by the preceding factions, these parties ran into certain realities throughout their history which demanded of them a decision on how to respond to these realities within the framework of their philosophy. These decisions are part of the process every political party invariably goes through, but were bound to be more frequent and more controversial for the socialist parties due to their odd-duck-out and atithetical status within the political spectrum.

There are plenty of examples of these critical decisions. I think the most widely known one must be the split between Bolsheviks and Mensheviks in the Russian socialist movement, where the Mensheviks favoured a more broad membership of activists versus the Vanguard Party ideal of the Bolsheviks. But decisions like these happened in Western Europe as well. To return to Belgium, there's among others:

• the choice to go from popular movement to a single party
• the decision to engage in parliamentary politics as opposed to revolutionary politics
• the question many European socialist parties faced in 1914: join the national war effort or maintain international solidarity
• the decision on whether to join various coalitions and step out of the opposition
• gradualism vs more revolutionary approaches

These decisions all had major implications and often led to splits (And thus was born the concept of 'splitters,' which I'm sure everyone remembers from that scene from The Life of Brian), and were more often than not based on very pragmatic rather than philosophical differences - electoral politics, regionalist disputes (Wallonia vs Flanders, Ghent vs Antwerp, etc) and so on. And every one of these decisions changed the nature of the party, ever so gradually. And while it's no doubt almost every socialist party started out as, well, an actual socialist, after every one of these decisions the question could be asked if the politics of the party were still congruent with socialism as a philosophy.

Due to the width of socialist philosophy, there was a lot of leeway here. While most socialist thinkers were very much internationalists, socialism within national boundaries is still very much conceivable, for instance. So while World War One wasn't really a highlight in socialist history, it's hard to argue that it was then that the European socialist parties turned into the social democratic parties we know them as today.

Nonetheless, this shift did end up happening, even though there's no clear breaking point. The process was very gradual and even though many of these critical decisions gave up some parts of traditional socialist thinking, most taken on their own wouldn't be enough to stop calling the parties socialist. The closest we can get to a definite split is in the period after WW2 when many socialist parties were at the peak of their influence and when they were put on the spot and essentially had to 'shit or get off the pot' re: their commitment to agitate for a switch to a socialist system. As we know now, they invariably chose to work within the existing system and ended up being influential in creating the welfare state. By then, the end of the capitalist system was an afterthought for most of these parties, even though it remained official party ideology for quite some time (until 1979 here in Belgium). To complicate things further, it's worth pointing out that these parties weren't single-minded monoliths but rather a collective of people with their own personal ideological preference - and who had the upper hand within the party was subject to constant change as well.

Now, why did I write all these words about the evolution of socialist parties in Europe when you asked us about socialism being used to refer to both social democracy and socialism? Well, as you can see, the shift within these parties - essentially the standard bearers for socialism and later social democracy within our society - was ever so gradual and hard to pin down. It's impossible to say whether referring to these parties - and these ideologies - as socialist or social democratic one year or the other would be correct. So inevitably, the meaning of the word "socialism" in referring to these parties was going to shift along with their actual ideology. The fact that most of these parties still call themselves socialist and often still see themselves as reformist socialists makes the distinction even harder.

All that said, speaking from an academic viewpoint, socialism and social democracy are two very separate things - one requiring the end of the capitalist system, while the other is a capitalist system. However, outside of academics, it's hard to blame people for referring to both as socialism, due to the aforementioned reasons (among other reasons, I should add).

Sorry for writing all those words without really providing you with an answer to your question. Hope it gave some perspective, at least.

Related question: I'm curious when "Social Democrat" became a distinct identity from Socialist?