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The video tutorial demonstrates how to edit the hosts file on Ubuntu, which contains domain names and their corresponding IP addresses. This file is used for DNS lookups before querying external servers. By adding entries in the hosts file, you can direct your system to use a specific IP address for a hostname, useful for testing websites on a new host without changing DNS settings. The Nano editor is used to edit the file, and changes can be saved by pressing Ctrl + X, entering 'y' for yes, and pressing enter.
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