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Hot seat refers to two or more people playing the same game but at the same location. For example, if you were at home, you and a family member or friend could both manage a different team.
It's referred to as 'Hot seat' because you're taking it in turns with one person using the controller to do everything they need to do before pressing continue. This then switches to the next users team, and then they take control of the controller and do everything they need to do before pressing continue... and so on... It's essentially a form of multiplayer.
That's right - it's through one controller which isn't any different to what RedBlood pointed out in terms of using a mouse and keyboard for the same purpose on a PC.
I suppose we could look at extending the functionality to the other controller ports but there will always be potential overlap which is more hassle than it's worth, as you can play with up to 16 players hot seat in FM 2006 Xbox 360.
HOTSEAT Play 
Linear Mode
