Usually its in this format:
service: hostname: options
Basically its a way to allow particular hosts to perform certain services on your machine.
Say for instance if you wanted machineA with IP or 192.168.1.200 to be able to telnet on your machine you would have something like this:
in.telnetd: 192.168.1.200 : ALLOW
Or you can specify a whole domain if you wanted like:
in.telnetd: some-domain.org : ALLOW
This will probably lead to what does host.deny do, well, its just the opposite of basically this file does. You can deny certain hosts from services on your machine.
Hope this helps you understand a bit more about that file.