In short:
Basically, I just want to know why overfow:hidden explands the container containing a floated item. Shouldnt it hide the overflowing element like in this image
This is a really good question despite others' comments.
The actual answer is "because someone decided it should work that way."
Fortunately, we can discuss the topic online, maybe influence those people, and sometimes even change things.
In the meantime you can always read "Why Containers Don’t Clear Themselves": http://css-tricks.com/containers-dont-clear-floats/