According to Paul Thieme (1938), the Vedic term arya- in its earliest attestations has a meaning of "stranger", but "stranger" in the sense of "potential guest" as opposed to "barbarian" (mleccha, dasa), taking this to indicate that arya was originally the ethnic self-designation of the Indo-Iranians. Arya directly contrasts with Dasa or Dasyu in the Rigveda (e.g. RV 1.51.8, ví jānīhy âryān yé ca dásyavaḥ "Discern thou well Aryas and Dasyus"). This situation is directly comparable to the term Hellene in Ancient Greece. The Middle Indic interjection arē!, rē! "you there!" is derived from the vocative arí! "stranger!".
The Sanskrit lexicon Amarakosha (c. AD 450) defines Arya as mahākula kulīnārya "being of a noble family", sabhya "having gentle or refined behavior and demeanor", sajjana "being well-born and respectable", and sādhava "being virtuous, honourable, or righteous". In Hinduism, the religiously initiated Brahmin, Kshatriya and Vaishyas were arya, a title of honor and respect given to certain people for noble behaviour. This word is used by Hindus, Buddhists, Jains and Zoroastrians to mean noble or spiritual., for example, Four Noble Truths (Pali: Cattāri ariyasaccāni, Sanskrit: Catvāri āryasatyāni), and Noble Eightfold Path (Pāli: Ariyo aṭṭhaṅgiko maggo; Sanskrit: Ārya 'ṣṭāṅga mārgaḥ).
The Indo-Iranian term is from Proto-Indo-European *ar-yo-, from the same root as Sanskrit rta, Iranian asha. Root cognates without Indo-Iranian include a large constellation of associated concepts, such as Greek arete "virtue" , aristos "best", and ortho, in orthodoxy; Latin rectus and erectus, and all Romance derivatives, as well as German Recht and English right.
Sanskrit aryá- is an adjective meaning "kind", "favorable", or "devoted". In nominalized usage, it can take a meaning of "master, lord". The vrddhi derivation ārya-' means "respectable", "honorable", "noble", and "belonging to the brahmin, kṣatriya, or vaiśya varṇas.". As a noun, ārya- means "an honorable or respectable man", "a master", "an owner", "a member of the three highest varṇas".
The important Sanskrit lexicon Amarakośa (ca. 450 AD) defines ārya thus: "An ārya is one who hails from a noble family, of gentle behavior and demeanor, good-natured and of righteous conduct. (mahākula kulinārya sabhya sajjana sadhavah.)"
Ārya- was also frequently used as a prefix of honor attached to names, and sometimes as an integral part of a person's name. E.g., Āryāsaṅga is the name of a Buddhist philosopher and author , and Āryabhaṭa is the name of an Indian mathematician.
In general, Ārya is either a term of approbation or refers to one's standing in the varṇa system: an arya is a free man, and not a member of a lower caste or a slave. Roughly, 'arya' is a follower of vedic traditions and take vedas as the nodal point of their religious and social identity. At an early period, the cultural area where the varna system was used, along with the linguistic area where Indic languages were spoken, would have been nearly the same. This region (northern and central India; the Indus and Ganges plains) was called Āryāvarta, meaning "abode of the noble people". At present, these cultural and linguistic spheres overlap but are quite distinct from each other. That is how 'aryavarta' is defined in manusmriti. Later the vedic culture spread through much of the Indian subcontinent and the word has come to mean Bharat in general.
The Western interpretation of ārya as the name of a particular race ("Aryans") became known in India in the 19th century and was generally accepted by Hindus and Hindu nationalists, though combined with religious self-identification. In response to the racial concept Vivekananda remarked: "...it is the Hindus who have all along called themselves Aryas. Whether of pure or mixed blood, the Hindus are Aryas; there it rests." (Vivekananda, Complete Works vol.5).
As an aside, mention must be made of a fact that does not lie in the realm of what could be considered Conventional History. Dravidian is an English word which comes from Dravida just as Aryan comes from Arya. Now pre-historic traditions from both Dravida and Arya make mention of Dravida being the original homeland of both the Dravidians and the Aryans of India. Here, however Dravidians are a people on the basis of region and not race, and similarly Aryans are a people on the basis of practiced customs and not race. Here, Dravida means a stretch land from East Africa and Madagascar till South India, and possibly further till Southeast Asia and Australia. Both the Dravidian legends and Aryan legends attribute their origins to this sunken continent.