Scuba diving hoods are made of neoprene, which contains tiny nitrogen bubbles inside the material.  These bubbles form an insulating barrier between your head and the water, proving excellent thermal protection.  A thin layer of water will enter between your hood and your head at the beginning of your dive, which is quickly warmed to your body temperature.  In order to keep you warm, hoods should fit snugly, so that this warm water layer is not constantly flushed out by colder water.

As you dive deeper, your hood will compress due to the increasing water pressure, which makes your hood lose some of its insulating capability.  Therefore, you should consider buying a hood that is designed to be warm at the deepest part of your dive.

Most wetsuit hoods have a bib that tucks into your wetsuit to reduce water flow into the hood, although some divers prefer hoods without bibs.  Many hoods have vent holes at the top to allow trapped air to escape from inside the hood.