Understanding installation of Database


I tried to search over different tutorials but I have still not understood the following:

In the 2nd Step of the installer I have to put the Database Host:

If I put “LocalHost” What does it mean?

Does it mean that my localhost database will move to my server host?
Are the username, password and db name the ones in localhost or server host?
What happens?

Sorry I am totally confused about this step.

Appreciate your help,