If I bid for the term "hosting", does that mean that I will automatically have my ads displayed for "web hosting", "dedicated hosting", and virtually every other term that has hosting in it? If so, why would you ever want to be more specific? Especially if you can use negative keywords.
It will if you have 'hosting' as a phrase or broad match. Why would you want to be more specific? - to match the ad to the keyword (or use DKI), to get a better price for a more specific keyword and, because you will not think of every possible negative straight off. (and I suspect with a word that broad you'll end with an awful lot of negatives - but I'm not in the hosting game, so you may know better)
Do you want your ad to show when some one searches for Tips on Hosting a dinner party Don't forget that when you get tons of impressions and very few clicks then your quality score drops, thus your click price go up and your placement drops With all due respect, the fact that you asked this question indicates that you have an aweful lot to learn, which I suggest you do before jumping into adwords.
also lets assume you bid $1.00 for hosting. As you know broad match will map you to web hosting, hosting company, business hosting. bidding the same for all the keywords will cause you to pay unnecessary prices for all the words your mapped to. What if you could have payed $1.00 for hosting .50 for web hosting .25 for hosting company .75 for server hosting building out all your keywords allows your greater control over spending across all the mapped keywords, as well as more targeted creative.