What is happening during CHAP PPP authentication between Cisco routers?

Question

I'm going through the great CBT nuggets series for the CCNA.

In the video on WAN protocols Jeremy sets up a PPP connection between two routers using CHAP authentication. On each router he adds a local user with the name of the adjacent router's hostname, runs ppp authentication chap on each router's interface and it just works.

What is the significance of creating a local user with the hostname of the connected router? Does something special happen when you create a local user with the hostname of a router?

For example: I have R1 and R2 connected with a serial link using PPP encapsulation. I enable ppp chap authentication on R1's connected interface. I add a local user on R1 named R2 and give it a password. I then add a local user on R2 name R1 and give it the same password. Now one way authentication is in effect and it starts working, but I don't understand how.

I'm creating 2 different user accounts with the same passwords. During ppp authentication I guess the routers just authentication with each other's hostnames? I tried creating a local user on each router with the name "joe" and gave it the same password, but authentication did not work.

Answer 1

Note: By default, the router uses its hostname to identify itself to the peer. However, this CHAP username can be changed through the ppp chap hostname command. Refer to PPP Authentication Using the ppp chap hostname and ppp authentication chap callin Commands for more information

The information above was taken from http://www.cisco.com/c/en/us/support/docs/wan/point-to-point-protocol-ppp/25647-understanding-ppp-chap.html