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Hiding allows you to move unnoticed (if successful). The check is made every time, you move while hiding. When hiding your speed (mobility) is halved. You can sneak even when skiing. The chance of success is influenced by distance from the target, surroundings (trees, slopes...), your physical penalty and awareness of your target (it is much easier to hide when your target is sleeping and some animals can spot you easier than others, even when sleeping, especialy at low mastery). Stealth improves every time the player moves. Hidden attacks always hit.
Quotation from in-game encyclopedia: The ability to move silently and without being detected. Stealth-skill is checked every time your character advances while sneaking. You can start sneaking by using [h]ide command. It should be understood that sneaking doesn't make you invisible. Foremost, stealth is a skill that helps to decrease the noise you make while advancing. To some degree stealth/skill also determines your character's ability to use available cover to avoid being seen directly. If you sneak in from of someone in the open, they probably can see you as well as you can see them. Therefore it's always best practice to sneak upon your target from behind, and along a path that provides reasonable cover. Stealth-skill is also subject to physical penalties for it's more difficult to move silently if you are injured or carrying heavy load. There are also additional factors which may interfere with the success of sneaking upon on your target. Distance to target, available cover and acuity of the observers senses all affect to how easy, or difficult, somebody is to detect. Many animals have superior hearing and sense of smell and therefore sneaking on animals can sometimes result in getting just a few steps closer to your prey before it spots you. But often closing the distance even a little can be crucial advantage in hunting."
Stealth affects whether animals and people can see you. If you are hiding they won't see if you have good skill. Stealth is easy to train. It can be trained by travelling on the zoomed in map while hiding until you get your daily increase, then zoom out and continue travelling.