To hide in the hat, the player has to click the RMB (Right Mouse Button) over the Bush Hat while it's in the hat slot on the inventory toolbar. Right-clicking the hat again does not undisguise but instead takes the hat off the hat slot, but moving around will immediately remove the disguise.

When hiding, enemies won't notice the player unless the enemy was already targeting the player. Charlie is not fooled by the disguise. Also, Gobblers can distinguish between Berry Bushes and the Bush Hat; hence, they will not approach the player when the player is hiding with the Bush Hat.