By default, Personal Hotspot is set to allow connections over USB only. When you turn it on, you'll see this pop-up asking if you'd like to turn on WiFi and Bluetooth to allow for wireless connections to your Personal Hotspot. If you do (and you probably will, in most cases), tap the Turn on WiFi and Bluetooth button.
When other devices want to connect to your Personal Hotspot via WiFi, they'll use their standard method of connecting to a new WiFi network.
