Does the 'java' command compile Java programs?

To answer why this error is given, the class name for the file must match the file's basename.

You have two options to have this code work for the traditional javac; java sequence:

1. Rename the class to public class Hello or

2. Rename hello.java to myclass.java.

The java interpreter for Java 11 does not impose this requirement. The class that contains main can have any name, as long as it is the first class in the file. This was mainly intended to ease the learning process for beginners, and to allow "java scripting" with the shebang (ref.).

If you are running Java 11, there is a new feature that allows single source file execution. The single source compiler is more promiscuous in terms of class name versus file name, so that is how you are able to run but not successfully compile.

If you are on a previous version of Java, then your current hello.java does not compile, because of compile errors, specifically around the class name. So there's absolutely no way that calling java hello.java compiled your code, because it does not compile.

It seems most entirely likely that you were running some previously compiled code when executing the java command.

Prior to Java 11, to run your code you have to first compile it, then you can run it. Here's an example:

javac test.java
java test

Since Java 11, you can still do javac + java, or you can run java by itself to compile and auto-run your code. Note that no .class file will be generated. Here's an example:

java test.java

If you run java -help, you'll see the various allowed usages. Here's what it looks like on my machine. The last one is what you ran into: java [options] <sourcefile> [args] which will "execute a single source-file program".

$ java -help
Usage: java [options] <mainclass> [args...]
           (to execute a class)
   or  java [options] -jar <jarfile> [args...]
           (to execute a jar file)
   or  java [options] -m <module>[/<mainclass>] [args...]
       java [options] --module <module>[/<mainclass>] [args...]
           (to execute the main class in a module)
   or  java [options] <sourcefile> [args]
           (to execute a single source-file program)

UPDATE:

As pointed out by @BillK, OP also asked:

why do we need the javac command?

The reason we need javac is to create .class files so that code can be created, tested, distributed, run, shared, etc. like it is today. The motivation for JEP 330 was to make it easier for "early stages of learning Java, and when writing small utility programs" without changing any other existing uses.