All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah and that Muhammad is His slave and Messenger.
There is no harm with nodding to express approval, as if saying, "Yes," or "I agree." There are texts in the Sunnah that prove that it is permissible. It was narrated on the authority of 'Aa'ishah within the story of the death of the Prophet that her brother ʻAbd Ar-Rahmaan entered upon her with a siwaak (natural toothbrush) in his hand. She saw the Prophet look at it (i.e. siwaak) and knew that he loved the siwaak, so she said (to him), "Shall I take it for you?" He nodded in agreement. She took it, and it was too stiff for him to use, so she asked him, "Shall I soften it for you?" He nodded in agreement. So she softened it..." [Al-Bukhari]
In another narration, Asmaa' bint Abi Bakr said, "I came to 'Aa'ishah while she was praying (for the solar eclipse) and said to her, "What happened to the people?" She raised her head towards the sky. I said to her, "(Is there) a sign?" She nodded her head meaning, 'Yes.'..." [Al-Bukhari and Muslim]
Al-Bukhari allocated a chapter in his book entitled "(24) Chapter: Whoever gave a religious verdict by beckoning or by nodding," and another one entitled, "Using gestures to express the decision of divorce."
A number of ahaadeeth were cited in this chapter. For instance, Anas ibn Maalik narrated, "During the lifetime of the Messenger of Allaah a Jew attacked a girl and took some silver ornaments that she was wearing and crushed her head. Her family brought her to the Messenger of Allaah while she was in her last breaths, and she was unable to speak. The Messenger of Allaah asked her, 'Who has attacked you? So-and so?' mentioning somebody other than her murderer. She moved her head sideways. He asked her again, mentioning another person other than the murderer, and she again moved her head sideways. Then he asked, 'Was it so-and-so?' mentioning the name of her killer. She nodded in agreement. The Messenger of Allaah ordered that the head of that Jew be crushed between two stones..." [Al-Bukhari]
As for nodding as a form of greeting, the scholarly view adopted at Islamweb is that lowering the head, even if not accompanied with bowing down, when meeting or greeting someone should not be done as it is disliked.
An-Nawawi wrote, "Bowing with the head to a person... is it lawful or not? The answer: Bowing with the head is disliked..." [Al-Fataawa]
Hawaashi Shurooh Al-Minhaaj (a Shaafi'i book) reads, "Lowering the head or the upper part of the body slightly in a way that does not amount to rukoo' (bowing with your upper body) while greeting someone is not prohibited and does not constitute an act of disbelief. However, it should be disliked."
The Permanent Committee for Islamic Research and Fataawa was asked, "Question: We joined a Karate club in America and the trainer said (to us), "You have to bow when he bows (in a karate duel),' but we refused and explained to him about our religion, and he accepted that. However, he said that we have to bow with our heads, because the other player greets us with a bow and we have to return the greeting. What is your opinion regarding that?"
The answer reads, "It is not permissible to bow when greeting, whether to a Muslim or a non-Muslim, and whether with the upper part of the body or the head, because bowing is a greeting of worship and worship can only be for Allaah alone."
Allaah knows best.