As said in a comment, the hosts file has the function of mapping ip addresses to hostnames, i.e. 127.0.0.1
Hostnames have the function of being human friendly aliases for ip addresses, i.e. blahblahsite.ca
A hostname is synonymous with a host header in an URL to a web server, i.e. http://blahblahsite.ca
The host header has two functions:
- resolving the request to the ip address of the web server. This is done through a dns query, or in your case through the hosts file which takes precedence over the dns query.
- when the request arrives at the web server, mapping the request to the correct virtual host for further processing. This is done through the default virtual host (catch-all) or through a name based virtual host (where the servername or serveralias is set to blahblahsite.ca)
A URL to a webserver has a slash something following the host header. This is called a URI. The URI is the relative path in your web server to the page which is requested. The URI can be mapped through a multitude of mechanisms, but mirrors in its simplest form the subdirectories of the directory your web servers virtual host shares.
Thus, /wordpress is a URI shared by your web server in one way or another.
Principle of the URL: Protocol://hostHeader/URI
http://127.0.0.1/wordpress
http://blahblahsite.ca/wordpress
would both be valid URL:s on your local computer, if it has a web server sharing the URI /wordpress to any host header or to the host header blahblahsite.ca specifically, and has the following entry in its hostfile:
127.0.0.1 blahblahsite.ca
So, get a really good beginners book on Apache, read and try your wings, then move on to xampp. The URI is where the interesting stuff happens, but you need some web server basics in place first.