The name database host, how the name indicates the server that hosts the database, should be the server ip, that hosts that database. I don't see any relation of it with the scripts that try to access it. But conversely, what I see the explanation mostly is : As long as the program ( php/.net scripts ) are on the same server as the database, which is the case with our servers, you will want to use 'localhost' as the database hostname.If you are needing to test an external connection, you can use the domain name (if pointed to our nameservers) or the server IP addressIt means, the scripts location decide the database-host ? So, does that mean this terminology is confusing ? Also, why something called database-host needs to be configured ? What is it's importance ? 
What is the significance of database host name while configuring database?
database;terminology;mysql
It is not unusual for the database to be on one server and the scripts to be on another server.In this situation, it is necessary for the script to know the name of the server that holds the database.  This name is sometimes known as the database host name because it is the name of the server that hosts the database.Localhost is a special name that means the name of the server the script is running on.  If you use this special name, then you don't need to worry if someone renames the server.  Likewise, your script will work fine on another server if the database is also on that other server.