From Nookipedia, the Animal Crossing wiki
Hide-and-Seek is a game that a player can play with the residents of their town. Hide-and-Seek was introduced to the Animal Crossing series in Animal Crossing: City Folk and returns in Animal Crossing: New Leaf.
The game is started when a villager asks the player if they wish to play. Upon agreeing, the screen will then fade and reappear at the Town Hall, where a number of villagers have gathered with the other villager and the player. The villager that suggested the game will then announce rules and how long they will be playing for. After the rules have been explained, the screen will fade again. When the screen reappears, the villagers will have disappeared, and a transparent blue bar will run across the screen, telling the player to go off and find everyone. The clock in the upper left corner will be replaced with a stopwatch, indicating how much time is left. The player must find all the villagers before time runs out.
The rules of Hide-and-Seek are as follows:
A resident will hide behind trees, buildings, public works projects and signposts (including the Bulletin Board), occasionally peeking their head out to look. The only method for a player to take is to run around town in an attempt to find them. A villager can be located anywhere around the town. The player is more likely to succeed if they press up on the directional pad - nearby buildings, trees, and signposts will disappear, revealing the possibility of villagers hiding behind them.
It is impossible to see behind buildings so if a player is having trouble spotting an animal they can just run along the back wall of the building (whilst touching the wall) and see if anything blocks their path. Most likely that thing is an animal. Villagers, however, will never be completely unseen; they will most likely be hiding on the edge of a building and will still be easy enough to spot.
Once found, the villager will tell the player how many residents there are left to find. Once the last villager is found, the screen will fade for the final time and reappear at the Town Hall (or the plaza in New Leaf), where all the participants have gathered.