And Scent

Q: How do the Hide and Move Silently challenges vs Scent work?

By taking these skill challenges, you become undetectable by scent. Thus, creatures with that ability no longer automatically sense you when they come within a certain distance. They can however still find you via other senses (so they still get Search, Spot and Listen checks against you, as applicable to their situation). Due to the steps you have to take to negate their scent, you suffer a penalty on your check (the skill challenge). This could represent the fact that you had less time to find a hiding spot, or that you had to crush up some herbs to mask your scent (thereby giving a hint you were nearby) and so on.

Hiding in Combat

You can hide in combat to get sneak attack / deny active defense on an opponent.

However, hiding in combat is not that easy. You first have to distract your opponent (bluff check, which I would generally oppose with a BAB check in combat). Then you have to move at least 10 feet. There also needs to be cover or concealment in which you can hide. And of course your Hide check needs to beat the target's Spot check. (see Hide skill in IH on all this)

If you succeed in all this, then on your next turn you could move out of hiding and get sneak attack / deny their active defense. If you only have to make a 5 ft step to reach them, you can even full attack with these bonuses (cases where this is possible aren't likely to be all that common though).

Generally speaking (i.e. assuming no funky class abilities or feats on the part of the target) if all you are looking for is sneak attack, simply flanking the target is a much easier option to get it.

Shadow Strike

Change the first sentence from "In return for a –5 penalty to your Hide check, you can make a Hide check as part of an attack action against an opponent who has lost his active defense bonuses against you." to: