Only use /etc/hosts for resolving hostnames on Linux

This can be implemented with a DNS forwarder than acts like a very basic DNS server. The popular implementation is Dnsmaq, however this might be possible with services like OpenDNS that can perform DNS filtering for you.

That's because the /etc/hosts is simply a file on your Debian server that it utilizes for its own name resolution.

It doesn't use the file to provide any DNS services.

Since you don't want to set up BIND can I recommend that you look at dnsmasq instead?

It's lightweight and can act as a DNS and DHCP server, simply by making use of your hosts file.