The reference is in S1E3 "Dad's Girlfriend" where Blossom is complaining about how much she dislikes her dad's girlfriend. Blossom's friend Six counters that "Well, your dad seems happy." Blossom responds, "So did Kurt Waldheim when he had his picture taken with Hitler." (available to view on Hulu).
I did not understand the reference, so I asked my friend from college who majored in International Studies (I myself minored in history). It was lost on her too, so I asked my parents, thinking that maybe someone alive in 1991 (when the episode aired) would understand it. However, neither my parents, my sister, nor my friend's parents understood it either.
I of course tried to find the answer on Google, where I learned about Waldheim's service in the SA during WWII, where he was accused of war crimes. However, to be honest, I still don't totally understand the reference. It seems as if Blossom is defending Kurt Waldheim, suggesting that he was just pretending to be happy in the picture with Hitler (which I could not find online). Which would make her dad's girlfriend Hitler in this situation?
In 1978 the US Congress passed the Holtzman amendment which rendered participation in Nazi persecutions a cause for deportation from the US. A few years later, prior to Waldheim's campaign for Austrian president in 1985 (following a term as UN Secretary General), it was revealed that he had concealed or downplayed his Nazi past during his political career and in his autobiography. This became a sticking point between the US and Austria during his presidency. In 1991, when this episode would have been filmed, Waldheim was Austrian president, but was persona non grata in the United States. The character is alluding to the fact that something enjoyable in the present moment might become a liability in the future. There is no reason to believe Waldheim ever literally met Hitler.