Please explain when and where to use the terms Theravada and Hinayana

I understand that Hinayana as a term is generally pejorative when referring to Theravadin practitioners. Where is the use of the term Hinayana proper, and why is it still used if it's considered offensive to Theravadin practitioners? I believe that the term Hinayana is mainly used in the context of displaying "faulty" logic by earlier schools of Buddhist philosophy than the Madhyamikas. Can you say more about this?