Two hostgroups:

h1
h1/h2
If h1 is the only item in the list of hostgroups 'managed' by u1 (filters tab, user properties) then hosts in h2 will be hidden from u1 (same for several levels of nesting)
Imagine a top-level hostgroup with looots of subhostgroups, when someone arrives someone will have to add permissions for every single subhostgroup in the hierarchy. Boring and time consuming.