It should be noted that since this discussion is religious, we must consider the beliefs of those who are non-Christians (such as myself) and thus use God as a reference to God, Gods or no God. :p
From an external viewpoint, Hell is a sort of mechanism religion creates to tell people what is right and wrong to do, and tells them with one big ass stick that going around screwing everyone and killing them is NOT the most civil thing to do. You wanna go kill a bunch of people and drink their blood? Go for it, but be warned - you're gonna end up in a place where they torture you for all eternity, so make sure that when you're killing those people that it's really worth it.
From a religious viewpoint, Hell is the incarnation of blasphemy and heresy. Problem is, what you deem as "blasphemy" and "heresy" differs from person to person, making entrance to Hell a difficult to define. This problem is shared with entrance to Heaven.
Personally, I take a middle road. I actually believe that life is more of a Hell than any place (mainly because if it is to exist within the Earth, there would have been caverns within it and would affect seismic waves) and that by passing through Hell successfully, you attain happiness, which is Heaven. It's symbolic rather than literal, but one's interpretation changes from individual to individual, so most probably do not share this belief.
A lot of people think that God is a guy who wants to zap you with lightning on the slightest misstep, but I always perceived Him more of an open-minded father that than a guy who wants to torture and kill you if you don't follow His direct route. He wants to lead you in a certain direction, but He won't necessarily be upset if you go one way or the other. Of course, there are extremes which are not acceptable to any parent, such as going around murdering people in droves, and by doing that you get whacked along the line, but simply by believing in Him in a different way? I don't think God would hate us for different interpretations of Him - in fact, I think He might think it's quite beautiful how many different interpretations of Him we have created as a species. I don't even think He hates Atheists, because if you think about it, Atheists think the universe is completely science, and science could easily represent a God-like force to them.
Hell is a test, Heaven is the reward for passing. Simple much?
Hell is also a small town in Michigan, USA. lol