No one knows exactly when and where did this sauna tradition start, but being naked in the sauna is something that true sauna lovers would never question.
In the Fenno-Ugric languages, the word „leil“ (the water vapour rising from a sauna heater or hot stones) has been used since at least the 3rd millennium BC. Originally in cave saunas, but also in the still quite common chimneyless smoke saunas, there was no bigger source of light than just a door and later also a small window. So being naked would not have been an issue :)
Going to the sauna was a very sacred act and it was done only together with the most close ones. It is likely that the whole act was ritualized, as is indicated by the preserved sauna customs, beliefs and general respect for the sauna, which clearly runs through the entire verbal tradition.
Nowadays, the most important arguments - whether to be naked in the sauna or not – are first and foremost the physiological ones. The fact is that the body needs the possibility to actively skin-breathe to cool down and sweat, which is why clothing is a distracting factor. It is also ideal for full enjoyment of the sauna when you are free from the need to play every-day social role-play games. In other words, in order to achieve the best relaxation, it is good to go to the sauna in the company of those who don't see nakedness as a problem.
However, such conditions might not always be perfect and therefore cultural-traditional-habitual differences might not allow us to feel good completely naked. In such cases, the following principle can be followed: cover yourself as little as the situation and the company currently allows, so that everyone could focus on relaxation in the sauna. However, it is highly recommended to use a bath towel made of natural materials or a light bathrobe for this purpose, and to avoid synthetic swimwear and bikinis, which significantly inhibit the skin's breathing.
For decades, I have been organising sauna rituals for people from very different nationalities and cultural backgrounds, and mostly, after hearing the explanation of why and how, people tend to either trust the tradition and be naked or cover their groin area with a sauna towel. In the rest area a sauna towel or a bathrobe is used, so that everyone would feel comfortable.