Now, in this case, you’ve run into slang usage that only loosely adheres to the dictionary usage.

Honestly, I think this usage is very much the dictionary sense of "appealing in a pretty or endearing way". "cute" covers a range of attractiveness or appeal in a way that applies across the spectrum of more specific compliments. It's a safe complement to use, no-one is likely to be offended where "sexy" or "hot" is more loaded and explicit.

It's also a more implied/less explicit way to say "sexy" (e.g. that's a cute guy) and can also apply to non-sexualized things like babies and cats so again, it's a safer choice.