The localhost entry is a standard setting. The IP address of 127.0.0.1 is considered the 'loopback' address which redirects your system to itself. So, when you connect to 127.0.0.1, you're connecting to your local system. A lot of system administrators are used to using a web address like
http://localhost to connect to a local web server.
So, DNS servers are automatically configured with these localhost entries. For more information, please visit
http://en.wikipedia.org/wiki/Localhost.
Hope this helps...
Mike