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Actually for setting up a tor hidden service, Tor's official guide explains, but it asks us to set up a LOCAL web server first. I do not get this part, because I do not think any one would like to use local web servers for Tor hidden services, this way when you turn off your computer, the hidden service will go down (or maybe I'm wrong).

How should we set up a dedicated server for a Tor hidden service? The server can be anywhere in the world, and we would use SSH or PuTTY for customization.

What do you think of this? Any idea?

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You can use any server \ computer you want, anything from a desktop computer, VPS or a raspberry pi. However as soon as you use a VPS or rent a external server then you loose control over the service \ data.

Regardless of what type of server you choose - the setup is the same. Install tor then set up the webserver on the server, enable hidden service and point it to port 80 at 'localhost' (so that it's not listening on external IP).

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By 'locally' they mean 'on the same machine you run your Tor on. The Tor that serves your hidden service that is.
This web server does not need to be accessible from any other host than your Tor, so in the case that your run Tor and your web server on the same host, your web server does not need to accept any connections from any other hosts than itself.

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