Actually, fuck the Nazis. Don't thank them for anything. Even if we're not going to do any thanking, I'm at least going to let you know that the first practical application of the electronic joystick — basically the same thing used on every modern video game system — was developed by them. For guiding missiles, because Nazis don't get fun.
That's not to say they actually invented the fundamental concept of a little stick that, when pushed in a given direction, produces a distinct electronic signal. That honor goes to an American, Carlos B. Mirick, of the Naval Research Laboratory. Mirick's Electrical Distance Control System was patented in 1923, who described his system as:
I construct the switch 10 in the form of a joy stick identical with the joy stick provided in aircraft for controlling the machine. An operator at the radio transmitter at a shore station who is an experienced aviator may therefore move the lever 20 in the same-manner in which he is accustomed to operating the joy stick in aircraft and control circuits at a radio receiver, on board an aircraft as will be hereinafter described, which in turn control the operation of the particular functions necessary in the flight of the aircraft such as operating the elevating planes, the rudder, banking the machine or controlling the engine.
So, we can see quite clearly here that the original inspiration for the small, finger-operated electronic joystick was the large controlling joystick from aircraft, which, at that time, would have directly acted on wires and levers to move the aircraft's various control surfaces. Later ones would use hydraulics to assist, but would still be in direct control.
The real innovation of the electronic joystick was separating the motion of the stick from direct physical interaction, and instead sending electronic voltages. That's the key element that made joysticks suitable decades later for video games.
Mirick's joystick for the Naval Research Labs doesn't really seem to have actually been employed for much — there was a remote aircraft project being studied, but it's not clear if any hardware was actually built.
And that's where the Nazis come in. The first electronic joystick to actually be built and used was part of Germany's war efforts in WWII. The Luftwaffe and the german Navy both wanted a way to make bombs, missiles, torpedoes — essentially any fast moving thing that blows shit up — steerable.
Since it's hard to find volunteers to actually pilot a missile into a target (although I guess Japan found a way to do that late in the war) a system was needed to control these missiles remotely, hence the introduction of the joystick.
A 2-axis electronic joystick seems to have been first used to guide a rocket-propelled glide bomb — basically, a missile — called the Henschel HS293. The joystick itself was mounted in a radio transmitting unit called the FuG 203 Kehl.
From what I can tell, each axis of the joystick was connected to a variable voltage sender like a potentiometer, and the two streams (X axis and Y axis) were sent to the missile, which adjusted its flaps and rudder accordingly, allowing the pilot to guide the missile. Of course, I'm simplifying the electronics dramatically — more detail is available here.
There's even some video of the system in action:
It doesn't seem like the system was perfect — flying a plane while also simultaneously visually guiding a missile with a joystick seems like a pretty intense task for a pilot to do all by himself, and the radio signals sent from the transmitter were prone to interference and jamming.
To handle the latter problem, there were joystick-guided missiles that didn't rely on radio signals at all — they were wired missiles. Yes, in warfare, the exact opposite of video games, wired joysticks came after wireless ones.
The wired missile guidance system, called FuG 207, used a very similar 2-axis joystick, but those signals were sent over 11 miles of thin wire, which was released in two spools from the bobbins on the back of the missile. One wire carried the X axis voltage stream, the other the Y axis, and while the idea of a missile trailing a bunch of wire through the air seems bizarre, (they're actually still in use today) these missiles were far more secure.
What's most amazing here is just how close these joysticks were to the ones you'd find today on an XBox One or Wii U controller. The same basic design for an analog stick — a ball-swiveled stick that moves a pair or potentiometers set at 90° from one another — hasn't really changed since WWII.
In fact, if someone was able to get their hands on an old Kehl control panel, I suspect you could swap out the potentiometers for ones that put out the amounts a modern system looked for and you could play Forza Horizon with an ex-Nazi control stick.
So no matter what sort of guff you may take for playing a violent or inane video game, remember — what you're that controller for is vastly better than what these devices were originally doing. So you're doing us all a favor.