What's the point of changing the hostname on my server?

Best practices dictate that you set your hostname to something meaningful - usually the FQDN of the server (if the system has a role where it's associated with multiple FQDNs -- like a shared web hosting server -- you would typically set a hostname like webhosting001.provider.com for its local hostname, with a corresponding DNS entry).

This is done for a number of reasons, but there are two main ones:

• As Nathan mentioned, some programs use the hostname for various purposes.
  Having an unresolvable hostname can cause unpredictable behavior.

• When you are logged in to a machine its local hostname provides a convenient way to identify it.
  This is a good way to sanity check yourself before rebooting a host.
  It is also important in an environment with multiple machines -- 100 systems all called local will get very confusing, but 100 machines named web##, mail##, etc. (or some other naming scheme you select and stick to) makes them easy to tell apart.

Some applications (apache, I'm looking at you) uses the hostname to look up the server's FQDN. Also, a hostname makes identifying the box you're on easier.

Adding a hostname is the best practice for any server. If you leave your host name to local, and you try to contact it's hostname via another computer, you might ping yourself as a result.

3 Weeks ago i was called for server troubleshooting at a sister compagny and their main Active Directory server name was : WIN7740f-TMFYG. Let me tell you, it made my life way harder than it should have been