On what basis did we divide the world into The First world, second world and the Third world?

Historically it was cold war terminology and how far they were removed from the super powers. US and allies were first world, soviet allies second, everyone else third.

Modern usage more to refer to how developed a country is. It's not really well defined so I don't think there is an agreed upon threshold. This is a carryover because nonaligned countries in the cold war were usually defined by poverty, lack of resources, etc.