Hostname injection is when you add the hostname value to the beginning of the content URI. Instead of seeing just '/index.html' in the content URI reports, you would see 'www.mysite.com/index.html'. This is helpful when you are tracking across multiple subdomains and you need to tell the difference between files on your different subdomains. You would see the following, as an example:
www.mysite.com/index.html
blog.mysite.com/index.html
store.mysite.com/index.html
3 different pages on different subdomains. Without adding the hostname, they would have rolled up into a single '/index.html' line and it would be difficult to know which subdomains they are from.
More info on setting up the filter can be found here: