What exactly is a personal hotspot? Think of a personal hotspot as your own Wi-Fi base station that you carry around in your pocket. Personal hotspots can be in the form of stand-alone devices (Mi-Fi units, Jetpacks, etc.) or they can be built into smartphones or cellular-connected tablets.
How do they work? A personal hotspot works by tapping into a cellular network and then wirelessly sharing a data connection with other nearby Wi-Fi-enabled devices. The efficiency of data transfer to and from those other devices will reflect the speed and strength of the wireless signal to the original hotspot device. That’s why hotspots have become more popular since the arrival of 4G networks: the improved network speeds have made hotspots more efficient and closer to the network speeds we are used to at home or at work.
What devices can connect to a personal hotspot? Basically, any Wi-Fi-enabled device can hook up to a personal hotspot and use its data connection. That means laptops, e-readers, iPod touches, gaming consoles, even Wi-Fi-enabled TVs. However, most carriers place limits on the number of devices that can connect to a personal hotspot at any given time. More on the limitations imposed by the carriers later.
Taken from http://www.theonlinemom.com/understanding-personal-hotspots/