nginx: configuration file /etc/nginx/nginx.conf test failed (host not found in upstream)

All you need is to put resolver that can resolve such domain name:

resolver                  8.8.8.8 valid=300s;
resolver_timeout          10s;

Google DNS (8.8.8.8) can resolve it, but it resolves to internal address belongs to network class C.

$ dig @8.8.8.8 www.class.com.192.168.33.10.xip.io
;; ANSWER SECTION:
www.class.com.192.168.33.10.xip.io. 299 IN A    192.168.33.10