hosts is the poor man's DNS (Domain Name System). lmhosts is the poor man's WINS (Windows Name System).

In other words, hosts matches IP host names to IP addresses, while lmhosts matches NetBIOS names to IP addresses.

It does not matter whether the names of these two files are upper or lower or mixed case, but they must not have a file name extension. If your text editor insists to add its own extension, add a period to the end of the file name.

One of the most frequent mistakes is trying to use the sample files HOSTS.SAM or LMHOSTS.SAM. These files don't do anything. The active files have no extension. Their names are just HOSTS and LMHOSTS, usually in lower case. (Windows not being like Unix or Linux in this respect, it works with upper case names just as well.) The files with the .SAM extension are sample files.