This feature was designed to prevent others from using your images on their website at your expense by preventing external links directly to your image files of the following types: .gif, jpg, .bmp. Linking to these files will only be possible from your website.
For example, if you try to access an image directly by entering http://www.live.demo/image.gif into a browser with Hotlink Protection enabled, you will get a Forbidden error, while that same image will display correctly when linked from any page of your website. Hotlinking can be enabled for any individual directory or for your entire website at once by protecting only the httpdocs directory.