Hedging is used to limit your losses to an extent.
Suppose you have Short position in Nifty Call, as it is a naked short position the potential for losses here is unlimited, now if you buy an Option few strikes above your short strike your losses will be capped to an extent, doesn’t matter how much the underlying goes against you, this is how hedging works.
You can also hedge your Futures position with Options, if your are Long you can hedge by taking Long position in Put Option and if you are Short you can take Long position in Call Option.
Another benefit of hedging is, as it limits your losses, whenever you hedge your margin requirement come down drastically. You can read this post for more information.
Suggest you read the Options module on Varsity, you will learn a lot more there.