A tout is essentially someone, usually a man, hired to go out and recruit or bring in travelers to hostels or other sleeping arrangements. You might also find touts trying to convince you to come to 'their' stores, restaurants or market areas. No matter what their goal is, you will no doubt come across these people in your travels. They often hang out at bus and train stations, ferry docks and at some airports. Touts prey on travelers wearing backpacks, knowing that they will be needing a place to stay or food to eat.
Touts are paid, by the hostel, restaurant or what ever the establishment, part of the fee for you staying, shopping or eating there. They may be legitimate cab drivers or employees, but their argument may not be very truthful. Quite often, the hostels they represent are either very far away (thus, you would normally not find it very easy while walking on your own) or in such poor shape that they were not rated in the more popular guide books. However, on occasion, you may be taken to a beautiful establishment that has unfortunately (or fortunately) been missed by the major travel guides.
When dealing with touts, your best bet is to ask many, many questions before agreeing to anything. How far away is it? How big is the place? How much does it cost? Are there curfews? How many beds are available? What services or goods are offered? Keep in mind that these people are salesmen. They will tell you what you want to hear. If you do agree to go with one of these guys, check the place out thoroughly when you get there. In our travel experiences, after agreeing with touts and allowing them to lead us to their hostel, hotel, shop, etc., we have been both pleasantly surprised and unbelievably disgusted.
I'll never forget one experience we had late at night in Cairo, Egypt. As we pulled into the bus station in downtown Cairo, our bus was immediately surrounded by what must have been fifty men, all staring up into the tinted windows. As soon as the door opened and we stepped off the bus, my travel companions and I were grabbed by approximately ten men, all vying for our patronage at their hotel. We were like raw meat being fed to starving wolves. Our backpacks were pulled...people were yelling at us...the touts even started arguing and yelling at each other over who was going to 'get us.' After endless refusals, we snuck off into the night on our own, barely escaping these men while our bus-mates were left struggling in the melee.