HotLink protection prevents other websites from directly linking to files (as specified below) 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.
I don't see any direct downside in this, it only saves TMS bandwidth, and as a result TMS can load faster!
This is what people get to see if they link directly to an image OR if they embed an image from TMS.

On a side note, if anyone wants to make a redirect image (leech image), please feel free to do so!
This means that when someone embeds an image from TMS, it will be replaced by this image, instead of that basic text above ^
Example of 4chan's leech image;
