If you don't install FuelHP according to the instructions in the documentation, you're in for a lot of work due to rewrite misery. So don't use 'localhost' but setup your virtual hosts properly. On your FuelPHP virtual host, point your docroot to the public directory, not to the installation root.
That link should work (at least load the controller) providing you have a file called app/classes/controller/hello.php (case sensitive!), containing a class called "Controller_Hello" (case sensitive!) which extends Controller (or one of the other base controllers), and a method called 'action_index'.
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