Sooo ... David Bowie didn't make it up as a hunky-dory title for his album?

My first association too, Cap

But "hunky dory" seems to have been around for ages. I think of it as slightly better than OK or alright. More jolly, equivalent to spot on or tip-top if we're going for (more archaic) Britlish equivalents - or just very well indeed more generally.

For some reason I've got in the habit of using the term quite a lot over the last 10 or so years. Quite often kick off or end emails with "Hope all is hunky dory". Interestingly I haven't used the term much if at all with non-Brits, assuming it wouldn't be understood. Highly ironic if it actually originated in the US.

As for the meaning, I'd assumed :
hunky = very much, great big portions of [related to "hunks of meat" and so on] but also with a touch of (as the dictionaries seem to have it) settled, comfortable [as in "hunkering down" perhaps]
and
dory = (as WO'N) golden [related to the names Dorien and Doreen and the French d'or].

FWIW