question

This might be a crazy question, but do you have to have internet connection to play multiplayer in FSX?

at least u admit its a stupid question yes

No.

Not if you are playing over LAN (such as ethernet), with two co-located PC's............

Can you explain how to do it? I tried it once but no one was hosting and so I started to adjust the settings, until it said ''hosting...'' and I have not gotten past there. Can you help me?

By the way, what is LAN?

LAN means Local Area Network. To make a LAN game:
1) Make sure you have a minimum of two PC's connected via a Network or directly to each other and they both have FSX running.
2) Open FSX
3) Click on the Multiplayer tab, select the 'Local Network (LAN)' bubble, put in a player name and click 'Sign In'
4) Choose 'Host a Session' (or 'Connect Directly' if you have already created a game and have the IP)
5) Fill out whats needed and click 'Next'
6) Choose your role, intentions, aircraft, conditions...etc and click 'Next'
7) Fill out whats needed and click 'Next'
Either wait, click 'Fly Now' or you are already in the session

9) On the other PC(s), follow steps 1 to 3 but click on the session and join it.

If you need it, these are what certain options throughout the hosting process mean:

Minutes until session starts: This is a delay after creating the session to when it starts. If you are ready before the delay is over, you may just click 'Fly Now' to bypass it.

Enable Voice Communication: So you can talk via voice, not just text.

Share my aircraft: Choose this to allow another player to enter your aircraft as a co-pilot. You can also switch control of the aircraft to the other player.

Also, if your thinking that you can play with everyone via LAN, you can't. LAN is just your local area network, not the whole FSX community. To play with everyone, you will need internet.