This is an example of creating /etc/hosts based on metadata.hostname:
# Do not remove the following line, or various programs
# that require network functionality will fail.
127.0.0.1 localhost.localdomain localhost
::1 localhost6.localdomain6 localhost6
{% python
import socket
import re
ip = socket.gethostbyname(metadata.hostname)
shortname = re.split("\.", metadata.hostname)
%}\
${ip} ${metadata.hostname} ${shortname[0]}