Taken from an interview BDK did, along with dozens of other legends, for the book “How To Rap: The Art & Science of the Hip-Hop MC”.. which is more of a required history lesson than a how-to for dummies.
BDK tells the author that in the golden age, a freestyle was a rhyme you wrote. It was “free” of “style” in the sense of subject matter. As in not a story about a girl, poverty, etc. Off the dome freestyles we’re just playing around on the corner to see who’d mess up first. He also says when you look at the greatest lyricists, they wrote their rhymes.
He doesn’t address rappers using the instrumental-of-the-month and calling it a freestyle. Which seems to bother some people, but not me. It’s definitely not the first word to have changed meaning throughout history.