A WiFi hotspot, created on an Android device, provides the device's mobile internet connection to other WiFi enabled devices (e.g. tablets or laptops).
While already available via apps mostly requiring a rooted device, the WiFi hotspot functionality was introduced as a "native feature" with Android 2.2 (aka Frozen Yoghurt aka Froyo). It allows to transform your Android device into a WiFi router, to which up to five other WiFi enabled devices can connect. This way they can not only access the Internet via the hotspot device's mobile data connection, but also communicate with each other.
As the hotspot creating device then needs to keep open multiple network interfaces simultaneously, its power consumption increases as well -- a fact to keep in mind when using this feature "on the road".
- tethering: Generic term for the facility to provide the device's data connection to other devices. Aside from wifi, this is also possible via usb-tethering and bluetooth-tethering
- reverse-tether: for the opposite direction (using another device's internet connection with your Android device). Usually this utilizes the laptop's/computer's internet connection via usb
- wifi-tethering: Similar to the above described hotspot functionality, there are things like ad-hoc-networks for point-to-point connections. These solutions usually require the Android device to be rooted.