hostname - Local hostname configuration file
The file should contain a single newline-terminated hostname string. Comments (lines starting with a "#") are ignored. The hostname should be composed of up to 64 7-bit ASCII lower-case alphanumeric characters or hyphens forming a valid DNS domain name. It is recommended that this name contains only a single label, i.e. without any dots. Invalid characters will be filtered out in an attempt to make the name valid, but obviously it is recommended to use a valid name and not rely on this filtering.
systemd(1) and the associated tools will obtain the hostname in the following ways:
• Otherwise, the "static" hostname specified by /etc/hostname as described above will be used.
• Otherwise, a transient hostname may be set during runtime, for example based on information in a DHCP lease, see systemd-hostnamed.service(8). Both NetworkManager  and systemd-networkd.service(8) allow this. Note that systemd-hostnamed.service(8) gives higher priority to the static hostname, so the transient hostname will only be used if the static hostname is not configured.
• Otherwise, a fallback hostname configured at compilation time will be used ("localhost").
Effectively, the static hostname has higher priority than a transient hostname, which has higher priority than the fallback hostname. Transient hostnames are equivalent, so setting a new transient hostname causes the previous transient hostname to be forgotten. The hostname specified on the kernel command line is like a transient hostname, with the exception that it has higher priority when the machine boots. Also note that those are the semantics implemented by systemd tools, but other programs may also set the hostname.
The simple configuration file format of /etc/hostname originates from Debian GNU/Linux.