The word "Cosplay" spread from a magazine called "My Anime."
During the 1970's manga clubs and movie clubs were very popular among college students. During the early 70's there was a strike done by students about policy and rules. College manga clubs were formed around this time the act of protesting against them as non-policy rules.
Combined with the mini comic magazine boom during the time, on the model of literary Doujinshi, Manga Review and Doujinshi such as "Manpa", "Dax" and "Wasedaman" were also became popular. Manga Doujinshi which helped make the comic market become larger first started around the 70's. (The first Comike is in 1975)
Businesses that handle events decided make "Manga panels" and panels where people draw portraits of the customers with the help from the college students. College students were encouraged to participate in the activities because it helped with their activity expenses. At the events, manga club students disguised as manga characters and had "Facial Portrait" artists participate in the school festivals and hitch-hiking events.
During the 70's people dressing up as manga characters were seen more often at comic markets but the word "Cosplay" wasn't created until the 80's.
There were articles about character masquerades on the magazines, "Manpa" and "Dax"
In the summer of 1977, there was a "big manga parade" which was formed by Tokyo Big6 University. The parade started in the shopping area of Mito city in Ibaraki Prefecture. There were many participants in this event from people dressed up as "Q-chan" from "Obake no Q-tarou" to Japanese soldiers. At this time though, the word "Cosplay" still has not been used.
At the same time, in world sci-fi event held in the United States called "WorldCon", there was a stage where a masquerade: people wear their favorite character of movie or novel, was being held. People were dressed up as characters from "Star Trek" which was popular during the 60's, and people dressed up as "Star Wars" which was aired in 1977. In Japan during 1981 to 1983, when Comike move their place to Harumi, there were people already dressed up as characters from "Lupin the Third" and "Urusei Yatsura." Their performance and photographs improved as the comic markets grew.
In June of 1983, a magazine called "My Anime" was published from Akita Shoten. In that magazine an article called "Costume Play" was published.
The author of the article is Takahashi Nobuyuki of Studio Hard Inc. and his friends from Waseda University, Yoshikoka Hitoshi (who became a Sci-Fi author), and Machiyama Tomohiro (who became a movie commentator).
The word "Costume Play" didn't sound appropriate in English so after a lot of revising, the article was called "Operation Cosplay."
During WorldCon in 1984, Tomino Yoshiyuki who is a director from Japan was invited to attend the convention. There were also many sexy Sci-Fi cosplayers but even at this time the word "Cosplay" wasn't used.
There were already many people in conventions dressed up as characters from "Star Wars", "Star Trek", "Ghostbuster" and "Space Pirate Captain Herlock."
In the dealer's room of this convention, the manager of Sci-Fi shop GENERAL PRODUCTS in Osaka, Mr.Takeda was dressed up as a character from his own movie, "Kaiketsu No-Tenki" but the word "Cosplay" was still not used.
In 1984, "Animage" (a magazine published by Tokuma Shoten) and "Shuukan Heibon" (a magazine published by Heibon Shuppan) reported the events but didn't use the word masquerade or "Cosplay" since they were not familiar with the word. They called it Sci-Fi clothing's or fantasy clothing's.
The word "Otaku" was created around this time during the comic markets.
The word "Cosplay" may have been used around during the time after it has been published, but it was definitely first published by Akita Shoten's magazine "My Anime" back in the 80's was the first putting word "Cosplay" as an article tittle.
During the comic market in 1986, the word "Cosplay" became used more normally and I believe it is because the explanation of the article "Operation Cosplay" has been edited since it first came out and is now easier to understand.
If anyone has the "My Anime" magazine from 1983 to 1986, please verify my article. It should be in the 1984 issue around autumn.
(Please note that some names and dates may vary in the article above)
I found the 1983 June issue of "My Anime" where the word cosplay was first introduced in a magazine.
I uploaded some images below.
The 1983 June issue of "My Anime"