In Django, the ALLOWED_HOSTS setting is a list of domain names your app accepts requests from. When a request comes in, Django looks at the Host header and checks if it matches any name in ALLOWED_HOSTS. If it does, Django processes the request normally. If not, Django rejects the request with a 400 Bad Request error to protect your app from attacks. For example, if ALLOWED_HOSTS contains 'example.com' and 'localhost', requests with those hosts are allowed, but a request with 'malicious.com' is rejected. If ALLOWED_HOSTS is empty, Django blocks all hosts unless you are in debug mode. This setting helps keep your app safe by only accepting requests from trusted domains.