hObject is the handle to the calling object; i.e. the object that is calling the function. handles is a structure with all of the handles to all objects.
The only time I use hObject is if I have two objects sharing a callback, e.g. pushbutton1 and pushbutton2 both call foo_Callback. In this scenario, I would use hObject to determine which one called or if we needed to modify the calling object.
