Another euphemism for the "confirmed bachelor" in a family or group. Although not necessarily a reference to homosexuality, it could be that the "uncle" in question is just eccentric, effeminate or prefers the company of his cats. It does not have pedophiliac connotations nor does it imply the man in question is of otherwise questionable character.
Examples from popular culture of the 1960s include:
.Floyd the Barber on The Andy Griffith Show, by Wally Cox
.Uncle Albert from Mary Poppins, played by Ed Wynn
.Uncle Arthur on Betwitched, by Paul Lynde
It is said of the situation where a person has the bad luck to make contact with his testicles against an undefined surface or object, intentioned or not.
Given the nature of the word, it is more appropriate to design cases where the interaction is made with a moving object, for example, a ball.
Although it is extremely painful for the victim, it tends to be considerably funny to people who witness it.
Today in the baseball game the pitcher took a nutshot; the baseball hit him in the nuts.
Man, I just watched the funniest nutshot video ever.