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The surfer's computer checks its hosts file. Is there an entry there? Of course, there rarely is.
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A cool trick to do with your hosts file is set up a virtual host on your server that isnt in your zone records, but is in your host file. The sub is unreachable unless someone can guess the subdomain name (and it doesnt even have to be a real domain name, "somenameimadeup" will work fine). Its a good way to set up phpmyadmin for instance. You still want a good root password for mysql, but it adds a layer of obfuscation.
Also, if you are initially building a site, you can use your host file instead of a nameserver so it doesnt go live on the internet until you are ready, but will still answer to its domain name from your computer. Thats handy for setting up wordpress. Its also handy if you want to work on a domain before it resolves to your ISPs dns.
Best of all... its a great way of blocking experts-exchange.com if you cant do it on your router. I really hate that site.