How did nationalism shape the development of Europe from 1789-1933?
Nationalism not only dramatically shaped European history in the period you mention, but its very nature also underwent significant change itself.
In its initial phase, nationalism was conceived as an emancipating idea, one that led to previously repressed cultures asserting their identities and throwing off the cultural and political domination of foreign powers. The concept as we know it today is handed down to us largely from the French Revolution of 1789. The birth of the modern French nation was inextricably linked with the overthrow of an aristocratic social order and its attendant injustices.
However, it wasn't very long before nationalism developed an altogether more repressive character. The French Revolutionary Army swept across Europe, ostensibly to liberate people from aristocratic subjugation. Yet what began as an exercise in liberation quickly turned to imperialist repression as French forces merely replaced one type of foreign domination in the territories they invaded with another. This process intensified as Napoleon carried French nationalism to the next stage in his conquest of much of Europe. Ancient feudal structures were dismantled, only to be replaced by a new aristocracy consisting of adventurers, parvenus, and members of the Emperor's extended family.
Right from its very inception, we can see then that nationalism has always been a complex phenomenon, veering back and forth between the urge to liberate and the desire to repress. With the great European revolutions of 1848, nationalism once again recovered some of its emancipating force. And though the various uprisings were all eventually defeated, many of those in authority recognized that things could not go on as before and that national sentiment must be taken into consideration in the future governance of Europe. A prime example of this re-shaping of the continent by nationalism is the establishment of the Austro-Hungarian empire, which partially re-established the sovereignty of the Kingdom of Hungary.
So long as the European political establishment was able, by various means, to keep the spread of nationalism in check, then some degree of equilibrium could be maintained between the European nations. However, all that changed in the aftermath of the First World War. Most of Europe's great royal houses, including the Romanovs of Russia, the Habsburgs of Austria-Hungary and the Hohenzollerns of Germany were deposed, unleashing a powerful, pent-up force of nationalist sentiment.
With political and economic turmoil plunging Europe into chaos, nationalism took an increasingly ugly turn. The collapse of European empires fostered a profound sense of grievance among various nations who felt that there was unfinished business left over from 1848. The often arbitrary division of territory by the Treaty of Versailles made matters worse. Unredressed grievances seldom lead to pleasant consequences, and tragically, this new breed of nationalism tended to be exclusionary, narrow-minded, and viciously militaristic. The right of one sovereign nation to determine its own future all too often meant the denial of that same right to another. The perhaps inevitable outcome of all this was the rise of fascism from the 1920s onwards, an ideology which combined all these toxic elements and more.
In some respects, the long-standing equation of nationalism with xenophobia, though in some respects unfortunate, is nonetheless understandable. For right from the very start, nationalism, even in its most emancipatory guise, was inherently exclusionary. The nation defined who did and who didn't belong; and those who didn't belong could always then too easily be marginalized, repressed and, in some cases, murdered. To some extent, we could say that the seeds of what happened in 1933, when Hitler came to power in Germany, had been sown in the storming of the Bastille in 1789.
Of course, the time frame you mention is very long and so nationalism had a number of different impacts during this time. One way to describe the overall impact is to say that nationalism led to a remaking of the map of Europe and to a number of wars.
Nationalism had the effect of remaking the map of Europe as old countries broke apart and new countries came into existence. For example, the countries of Italy and Germany as we now know them came into existence because nationalist impulses led to the amalgamation of a number of smaller states into the countries we know today.
Nationalism also led to wars. Most notable among these was WWI. World War I was caused in part by the nationalist desire of various peoples to rule themselves.