How does one become a host? Can two individuals be their own hosts and link up with only each other?

You are a host whenever you are running LimeWire and are connected to the Gnutella network. You are <b>also</b> a client at the same. This defies traditional networking schemes, and this makes up the very essence of peer to peer networks. There is no central server that every client hooks up with. Instead, everyone can and will serve as both a client and a server. So, to answer you question simply, install LimeWire and run it while you are connected to the Internet.
:-)