So I'm guessing you have Android 2.1 which is called eclair. Recently an update came out called froyo, or 2.2. With updates, they improve things, fix bugs, add apps, etc to your phone.
With hotspot, you can turn your phone into a wireless router so u can connect things like laptops, tablets, and other wireless gadgets, to the internet. Basically you have access to the internet just about anywhere you have a signal.