I'm 99% sure this is DCC. They are simply taking the CLP600 charge and converting it to USD (using a marked-up rate) before charging your card. It shows up as CLP658.40 on the confirmation screen because that's what the USD amount they're charging you would be worth if they converted it back to CLP, but you get a receipt for CLP600 because that's what you were paying before they converted it to USD. DCC is a rip-off.

I'm not that familiar with Hostelworld. If it's based in the US, I'm not sure if there's much you can do. If it's based overseas, however, and you have a good credit card, you may be able to dispute the DCC charges with your credit card, since technically merchants who use DCC are supposed to give you the choice to pay in local currency. Note that if it's based overseas, you can even get hit with a double-whammy as many credit cards (Citi and BoA for example) now charge a 3% "foreign transaction fee" even for USD purchases made overseas.

Note also that the lodging industry loves to play games with currency conversion even aside from DCC--and not just with budget travelers. When I stayed at the Four Seasons in BUD, for example, all prices were listed in EUR, but they converted my bill from EUR to FNT at a very favorable (to them) rate before charging my card. Had I brought EUR cash or traveler's checks, I would have saved something like 5% on my stay.

Similarly, at Coppola's resorts in Central America, everything was priced in USD, but they converted it to BZD at a very favorable (again, to them) rate before charging my card so I ended up paying almost 5% more in USD than the listed prices.