I just received a Loyalty Box and saw that the, Loyalty Potion Totem was one of the things you could choose. If I were to use it, how does it work and would I be able to choose the color Nostalgia on a pet I've created?

It changes your pet into ANY color you want, so you should be able to change your pet into Nostalgic. It works as any other potions. That means that to use it just click on it in your inventory, choose the pet you want to change, and select the color.