How do I set up the hosts file for multiple domains/hosts with the same IP?

The hosts file is only a mapping from names to an IP. You can specify multiple names next to an IP like this:

127.0.0.1 name1 name2 name3.domain

There are two highly voted answers - one putting all the aliases on a single line and the other putting them on separate lines. It's worth noting that whilst the first solution is more compact, the second may also be needed since Windows has a limit of 9 for the number of aliases on each line. So combine these two methods to have maximum compactness but still work when there are a lot of aliases:-

127.0.0.1 alias1 alias2 alias3 alias4 alias5 alias6 alias7 alias8 alias9
127.0.0.1 alias10 alias11 alias12 alias13 alias14 alias15 alias16 alias17 alias18 
127.0.0.1 alias19 ...etc...

I got this resolved thanks to Google and the collaborators, @jvilhena and @DRC. Here's how I did it:

If you are using Windows and XAMPP as in my case the first step is to set up the 'hosts' file. If you are using Windows it's likely that you will find it in C:\Windows\System32\drivers\etc\hosts. You can use any text editor to edit it.

You can set up as many host names as you like all pointing to your localhost, with the IP, 127.0.0.1.

For example:

 127.0.0.1               local.project1
 127.0.0.1               local.project2
 127.0.0.1               youcanuseany.name.here

The second step was to deal with the Apache file httpd-vhosts.conf. Again, I'm using Windows and XAMPP. It's likely this file will be in C:\xampp\apache\conf\extra\httpd-vhosts.conf.

You don't have to but I like to keep my project folders in my htdocs folder @ C:\xampp\htdocs.

For each project that you create a "host name" for, you should add the following to your httpd-vhosts.conf file:

<VirtualHost *>
    DocumentRoot "C:\xampp\htdocs\projectx"
    ServerName youcanuseany.name.here
    <Directory "C:\xampp\htdocs\projectx">
        Order allow,deny
        Allow from all
    </Directory>
</VirtualHost>  

One more example just for the sake of it :)

<VirtualHost *>
    DocumentRoot "C:\xampp\htdocs\project1"
    ServerName local.project1
    <Directory "C:\xampp\htdocs\project1">
        Order allow,deny
        Allow from all
    </Directory>
</VirtualHost>

Now you can type local.project1 and youcanuseany.name.here in your browser and it should open your project as if you were typing localhost/project1 and localhost/projectX. I hope this helps.