Hotlink protection prevents other websites from directly linking to files (jpg,jpeg,gif,png,bmp) on your website. Other sites will still be able to link to any file type that you don’t specify below (ie. HTML files). An example of hotlinking would be using a <img> tag to display an image from your site from somewhere else on the net. The end result is that the other site is stealing your bandwidth. You can list all sites under cPanel > Hotlink Protection from which you wish to allow direct links. This system attempts to add all sites it knows you own to the list; however, you may need to add others.
An example for this can be that if you own example.com, and have an image named test.jpg. The other user at example2.com can't embed it to their website. This helps save your bandwidth and the resources being wrongfully used without your knowledge.
Hotlink Protection isn't enabled by default. You can enable it by going to Hotlink Protection page from cPanel and clicking on 'Enable' button. You can do further customizations like which file extensions are to be blocked and other things from the same page.