The mountain or Appalachian dulcimer seems to have developed in the 1750s on the southwestern Pennsylvania frontier, or the western Virginia frontier (that area that's now West Virginia). It may be the attempt by Irish settlers to imitate a traditional German instrument called the scheitholt. (These 2 ethnic communities populated that frontier; the Irish being poorer and somewhat transient, and the Germans more inclined to settle and build homes and businesses.) The oldest dulcimers were crude and ugly - literally a wooden box with nails at both ends to hold the strings, and round tone holes. The first shape that starts to appear towards the end of the 18th century seems to have been the pear shape, with the hourglass appearing a little later. Possibly it was a very local instrument with very little exposure to the outside world. It died out quickly after the Civil War because its small size and soft tone made it difficult to compete with the larger, louder 19th century string instruments. It was almost unknown outside Appalachia when a college student brought one to school in the early 1950s, during the folk music revival. Because it's easy to play, study and easy to transport and folky, it caught on and makers began to produce kits for them and instrument makers started making them again. My dad made one for me when I was 14 from an Appleseed John kit. He was no craftsman, and it was ugly, but it played just fine. It has been estimated that there are now more dulcimers in existence than there ever were in the historical period. I have a little pear-shaped one made by (don't laugh) First Act. Lovely bright tone, stays in tune, indestructable body. I think it was $12. Irish and English folk tunes play on the dulcimer really well, as do French folk tunes. They have that modal, Celtic sound. I only fret the melody string, and let the others ring open as drones, but I know people who play on the inner strings too. I chord if I'm accompanying singing. The dulcimer really only plays a I, IV and V chord easily, but for music in our period that's usually enough.
Although it would have been an unusual instrument to find in any of our camps, I think it's an important instrument for us to play and use if you have the desire. Fewer and fewer people play anything but Pandora in our autotuned musical world, and need to be exposed to different sounds.