u soak it to help it sink (depending on the type of wood), but you can also soak it over a long (ish) period of time to help get the tannins out so that it doesn't make your water look like you've dropped a tea bag in the tank. I used wood in my work tank that I didn't have time to soak properly, so the tannins are still being released. It doesn't hurt the fish (infact some fish like tannins) but it means the water has a warm glow to it - it's clear (as in not cloudy), it just has a warm browny-orangey colour to it.
you can use hot or cold water. but make sure it is dechlorinated water