Hideout= The hideout allows you to hire spies who are able to provide you with information from the inside of other towns. A larger hideout provides space for more spies.
* Requires: Research: Espionage
Spies= Once "activated" and sent on an espionage mission, the spy (for a fee) will try to infiltrate the target town. After the infiltration has been successful, the spy remains stationed in the target town, and can be assigned new orders, or recalled back to the hideout. Any trained spies, which have not been sent with espionage orders and remain in the Hideout, are working in the defence, increasing the chance of failure of enemy's espionage missions on the town they are stationed in.
For more detailed information please see: http://ikariam.wikia.com/wiki/Hideout
A good general piece of advice concerning hideouts is to always keep your hideout level at least one above your town hall as this can help to make it harder for people to spy on you, therefore you become less of a target. The power of a high level hideout cannot be stressed enough!
Try to have a hideout at around level 15 if not higher in every one of your towns, the more upgraded your hideout is the more chance you have of catching spies. Please remember that only spies that are not away on missions will be defending your towns.
Often spies being found can be a good indicator of a possible attack to come. Therefore it stand to reason that if a person can't spy on you and know your defences then they're less likely to attack.
According to another player in the alliance...
"In my experience the risk goes up and down based on activity and time. The more missions you have your spy do (without resting in between) the higher the risk that the spy will be caught. Leave your spy in their city without assigning them a mission and the risk factor should go down.
Once you have a spy in a city you can then click on that city in island view and see the other persons town, mostly building layout but it will also let you see their building levels."
So... what is the moral of this tale i hear you cry?
Get those hideouts levelled up!