This is a bit old but for those looking at the answer, as me:
exclude_hv: do not count events that occur in the hypervisor.
The distinction between events occurred in user space, kernel, hypervisor, host, etc is done in software. The kernel and/or hypervisor will retire and replace the event count and configuration on each change of context.
Here is an excellent description of perf_events, which is the kernel module that handles the performance counters.