It was a requirement that foreign guests (hotel, private home, whatever) were registered with the police. They would take the passports to the police station at the end of the first day of stay, your passport would be returned to you the next day, or the same evening if you needed it. I think it was a tax thing.

I first visited Vietnam shortly after it was opened up to visitors, but it's a few years since I've been there. Do they no longer do that with passports? It didn't really bother me, but I'd rather not give my passport up if I didn't have to.