I've been reading up on this and it surprises me that it was a one-off as it would certainly have been a welcome additional to one of the anniversary models. 

So the functions I've gathered are:

1) hitting the button so that the person who is also listening to the music (two jacks) can talk to you

2) using it as a spy device by playing a blank tape and upping the volume

3) listening for announcements in airports/trains?

Is that it? 

Who actually uses this button also?

I believe that they put it in early walkmans as back then, the Japanese saw the use of headphones as anti-social and perhaps a little rude. So the hotline function was a means to allow some interaction with the outside world without stopping the music.

After all, headphones were a new thing at the time.

I think bub is right. As regards origins, this may be a facet of provenance. I remember reading some time ago that the TPS-L2's hotline button was a legacy button left over from the model it was based on, a tape recorder. It was originally a red record button. For ease of manufacturing it was changed into a hotline button, presumably with the original mic intact.

The TPS-L2 was based heavily around the TCM-600 Pressman & the removal of the recording circuit meant removal of the microphone socket too, though the internal microphone remained. This was used for the now famous “hot line” function. Pressing an orange button on the top of the machine (fitted in the place where the record and fast-play controls had been) faded the cassette sound down and mixed in the output of the microphone, so the listener could be talked to without stopping the tape. This was deemed attractive as two headphone sockets (humorously labelled “guys” and “gals” in the versions for some markets) were fitted so that two people could listen at once. The hot line function made a pause control unnecessary, so the arrangement fitted to the TCM-600 was removed.

I recall that the walkman had some bad press here in the UK as it was considered dangerous to use as it rendered the user potentially deaf to everything going on around them.

wow, thanks for the info. It would be cool if they added it to a commemorative version. 

Isn't is basically the retro version of the "monitor" button on most of the Sony Noise Cancelling headphones?

http://static.bhphotovideo.com...rgeimages/571816.jpg