Hot dog this is one of those pickle threads.
Normally, you need some kind of cover/concealment to hide properly. You can't stand in an open room and expect someone not to see you.
Camouflage allows you to hide without that, but only if you do it before the target could feasibly see you.
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Breakdown of Stealth
Normal use of Stealth has two requirements: a way to initiate it (being unobserved, if even only for a moment via distraction), and something to hide in (cover or concealment).
So, in normal use of Stealth, someone needs to first gain that moment of being unobserved (bluff to distract, or run around a corner), afterwhich they need to move to an area with cover or concealment with respect to whom they wish to use stealth against.
Camouflage makes it so the Ranger doesn't need cover or concealment in his favored terrain. Basically, he gets rid of the 2nd requirement of Stealth use. All he needs is a distraction, and he's gone. He could be in the middle of an open field, and you'll need to roll a Perception check to find him.
Since this is an Ex (extraordinary, not magical) ability, I kind of flavour this as the Ranger using a ghillie suit. He basically looks like his favored terrain, so he's not relying on darkness or being actually in a bush or around a tree or whatnot. Basically, he's wearing a bush.. or his suit is the same colour as the rocks/snow, etc, etc.
Now what's even more awesome is his ability at 17th level to Hide in Plain Sight, which gets rid of the 1st requirement (the only other requirement). You can be actively looking at him, but the way he moves into Stealth mode you simply lose track of him and need to roll Perception. He's that good.
He can basically use Stealth whenever he wants in his favored terrain.
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I hope that clears things up for you (it's a tough subject).
The Stealth rules say it here:
"If people are observing you using any of their senses (but typically sight), you can't use Stealth. Against most creatures, finding cover or concealment allows you to use Stealth."
You'd still need something to hide behind even if it's the looney tunes skinny tree. Unless you have camouflage or hide in plain sight.
As we all see everything in a 360 degree arc, there is no, "looking the other way" in the rules.
As stated, there is not facing in Pathfinder. The only thing that can simulate "looking the other way" is causing a distraction to gain Stealth. However, even in that event you have to get to a place of cover/concealment before they look back at you.
If your observers are momentarily distracted (such as by a Bluff check), you can attempt to use Stealth. While the others turn their attention from you, you can attempt a Stealth check if you can get to an unobserved place of some kind. This check, however, is made at a –10 penalty because you have to move fast.
Creating a Diversion to Hide: You can use Bluff to allow you to use Stealth. A successful Bluff check can give you the momentary diversion you need to attempt a Stealth check while people are aware of you.
Which all leads to the question of why they bothered rolling Hide and Move Silently into one skill without fully readjusting the rules to compensate? MS didn't require cover, concealment, or a distraction, and worked alongside the 360 degree observation rules.
In my opinion, the stealth and perception rules are some of the worst parts of Pathfinder (and were near the top in 3.5 as well).
You'll get little argument from us. They're bad enough that even Paizo considered replacing the rules wholesale a year or so ago. They ended up slightly patching them, which was somewhat of an improvement.