The short answer is that the Hosts file is like an address book. When you type an address like www.yahoo.com into your browser, the Hosts file is consulted to see if you have the IP address, or "telephone number," for that site. If you do, then your computer will "call it" and the site will open. If not, your computer will ask your ISP's (internet service provider) computer for the phone number before it can "call" that site. Most of the time, you do not have addresses in your "address book," because you have not put any there. Therefore, most of the time your computer asks for the IP address from your ISP to find sites.
Windows NT/2000/XP Pro c:\winnt\system32\drivers\etc\hosts
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