Hostels and Hotels both provide a place to stay, but a hotel is usually much more expensive than a hostel. Probably because hostels provide really the bare minimum (from what I've read. I've yet to actually partake in one), such as a small room with a bed, a bathroom and a shower. Hostels, again, from what I've read, also are generally shared - hostels are more for like "backpackers" and are meant for generally shorter, temporary stays, I think. Here's what a site I just stumbled upon has to say about them:
"
A hotel will provide guests with mini refrigerators, wet bars, cable television, wireless Internet service, telephones, irons and hair dryers. A hostel usually provides none of the above. The accommodations in a hostel, while minimal, are not unpleasant. If you're staying at a hostel, there's a good chance you'll meet like-minded people with some interesting tales to tell. In a hotel, you probably won't get to know the person staying in the room next to you. Hostels often provide a community room where guests can mingle and shoot pool or watch television. On a busy night, this can mean a crowded and noisy stay. A hotel room, on the other hand, offers privacy and quiet."
That basically sums it up, I suppose. In my opinion, I would love a hostel over a hotel, especially for trying to plan my little trip to Japan that I'm currently doing. I love meeting new people, I don't mind sharing, I'm extremely open minded (though I hate people who aren't), and I'll just need a temporary place to stay. How small it is doesn't really matter to me much. So if you're the same, a hostel may be a good idea for you too. If not, maybe you'd prefer a hotel.
(privacy is a nice thing, I will admit)