No, the Hostel in this case is Manish Gupta's statement against what we would call in the States "hazing" (read: acts of humiliation — usually through the use of violence — committed against college students by their elder classmates). In India, it's called "ragging."
The topic of ragging isn't news in pop culture; readers of Chetan Bhagat's Five Point Someone (What Not to Do at IIT!) — later adapted for the movie 3 Idiots — will recall that the three college friends who are the book's protagonists face the threat of being ragged in the very first chapter. They were spared, thankfully.
Mr. Gupta's Hostel depicts what happens to those who aren't so lucky.
There's more on the film, including some storyboards, over at Passion for Cinema. But for now, here's the theatrical trailer, definitely NSFW:
©2011 Matrix Medias.
By the way, Mr. Gupta is also the screenwriter for Ram Gopal Varma's Sarkar; you can read or download the screeenplay here. (Sarkar will be reviewed here soon.)
One more note about the above trailer: It is, to me, a good example of how I would like to see Indian movie trailers streamed online: the CFBC rating card is the first thing we see (an "A" rating for adult content here), and the contractual credits are given at the end, where they should be. UTV, Yash Raj Films and all the rest, please copy.
[UPDATED 2011.02.25-26: Shree International has released the export disc, available to North American customers via Nehaflix. As is usually the case for Indian home video, don't look for extras to be included — although I certainly would have wanted an English–speaking commentary track. Too much gets left unsaid about movies like this one.]