Using % for host when creating a MySQL user

localhost is special in MySQL, it means a connection over a UNIX socket (or named pipes on Windows, I believe) as opposed to a TCP/IP socket. Using % as the host does not include localhost, hence the need to explicitly specify it.

As @nos pointed out in the comments of the currently accepted answer to this question, the accepted answer is incorrect.

Yes, there IS a difference between using % and localhost for the user account host when connecting via a socket connect instead of a standard TCP/IP connect.

A host value of % does not include localhost for sockets and thus must be specified if you want to connect using that method.