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Soooooooooooo, does this mean you can host a server to play with friends, but you need to be on so they can play on it?

(+1)

To host a game you start or load a world normally while choosing 'allow friends to join' at startup, so yes, you have to be playing to host a game. There are no dedicated servers if that's what you're asking.

You could get yourself incapacitated and leave the game running while at that state then revive/respawn when you want to play but do note that time will pass even if no one else is in the game and Bruce will continue to chew the raft unless it's reinforced. Also do that take into account any restriction and consequences game more you're playing has (like inability respawn normally on hard).