[sblock=OOC and really long...]I've been taken a closer look at this. I think the issues are how hiding works and how it impacts sneak attack. I'll try to address the latter issue first.
So, per
the sneak attack description:
The rogue’s attack deals extra damage any time her target would be denied a Dexterity bonus to AC (whether the target actually has a Dexterity bonus or not), or when the rogue flanks her target.
I don't know of any comprehensive listing of the circumstances under which a target is denied their Dex AC bonus, but
this might be a good place to start. Examination of those tables and footnotes shows that a target loses their Dex AC bonus when the attacker is invisible or when the defender is: blinded, cowering, flat-footed, grappling, helpless, pinned, or stunned.
Concealment itself does not say that it makes the target lose their Dex AC bonus. Likewise, reading the entire
Hide section doesn't ever say that hiding makes a target lose their Dex AC bonus.
In referring back to
the combat modifiers table, I looked at flat-footed, and it notes surprised.
I don't see anything that specifically connects the use of the Hide skill and getting sneak attacks. I take it as OBVIOUS, however, that they are supposed to be related. At the very least, they are related inasmuch as using Hide might allow you to attack first (via a surprise round). I think, however, that even if you aren't getting a surprise round (e.g. because combat was started by Kushnak, and Erdolliel waited to strike from hiding), I would think that she would be treated as invisible, or that (relative to her) the defender is blinded.
So, to answer Ti's question ("what being hidden actually does for her that allows sneak attack to work"), I think that Hide, in and of itself, doesn't grant sneak attacks. Sneak attacks are generated because Hide leads to the defender being flat-footed, effectively blinded, or to the attacker being effectively invisible.
As for how hiding works, cover or concealment is necessary to hide. See
Concealment and Hide Checks
You can use concealment to make a Hide check. Without concealment, you usually need cover to make a Hide check.
and
Hide
You need cover or concealment in order to attempt a Hide check. Total cover or total concealment usually (but not always; see Special, below) obviates the need for a Hide check, since nothing can see you anyway.
Both of you pointed out that the lack of concealment shouldn't be an issue, because there is cover.
[sblock=Sidepoint]Because I didn't want to seem like I'm coming out of left field, the reason I mentioned only concealment in my 8:37 p.m. post was because Ti specifically said that he thought hiding did not mention needing concealment.[/sblock]
Certainly, the presence of cover allows Erdolliel to hide, despite the
faerie fire. In the case of total cover, of course the bad people can't see the fire anyway. In the case of partial cover, Erdolliel could, using her hide skill, attempt to block the light by staying behind the cover as much as she can.
I THINK where they issue comes is when that cover goes away. For example, if there is some bad guy behind the door, Erdolliel currently has cover from it. For the sake of example, pretend that there is an arrow slit in the door. Erdolliel would then have partial cover from the guy on the other side. She could still hide, but if she made a crappy roll, or the guy had an awesome spot, he might still see her. But, once the door is open, Erdolliel's cover is gone (unless she was hiding behind a pillar or something else).
So, if Erdolliel made her hide check while there was cover (when the door was closed), is she still hidden when the cover goes away (when the door opens)? The reason this matters is because, while Erdolliel is scouting ahead, sometimes there won't be cover. (This normally isn't an issue, because normally Erdolliel is in the dark (or partial dark), so she never loses concealment. She doesn't have that concealment anymore.) I think, then, that the issue is WHEN Erdolliel needs make a hide check. Because, since either cover or concealment is necessary, if she ever has to make a hide check when one of those is not present, she cannot hide.
The only thing I see that sheds light on this is the "Action" section of
Hide.
Usually none. Normally, you make a Hide check as part of movement, so it doesn’t take a separate action. However, hiding immediately after a ranged attack (see Sniping, above) is a move action.
I take this to suggest that a hide check is needed for each movement action. In non-round timing, this doesn't really matter, and I think our past practice (of just having one hide roll until you run into enemies) makes sense. If, however, Erdolliel snuck into a room of people, and she kept moving around the room, it would probably be appropriate for her to make a hide check each time she moved. In that case, if during that movement she lost both cover and concealment, she wouldn't be ABLE to hide (absent a diversion or bluff check as outlined in the skill).
I, of course, realize that I may have just completely missed the boat here regarding what you were both saying. I'm also very confident that I said this all in just about the longest way possible. So, I dunno. Does any of that make sense? Did I actually answer what you were looking for me to answer?[/sblock]