No localhost is right. localhost means the same server in where you have uploaded your wordpress directory. It will always be localhost. In very rare case when we have files on other server but want to install in other server we change localhost.
Edit:
I'm gonna tell you step by step.
Suppose your website url is
www.website.com.
Step 1 : Upload all files in your server. Suppose you have uploaded all of them at root/blog.
Step 2: Create one database. For that you have to go to mySQL database and then in new database field you have to type the name of database and then click on create new database.
Step 3: Note down the name of database. Remember the name you have given in the step 2 is not your database name. The actual database name is displaced there. Usually your user name.database name
Step 4: Create new user in that database. This time also the username of your user will be different. Note it down. Note down password too. Password remain the same as what you have given.
Step 5: Go to phpmyadmin and give all privilege to user.
Step 6: Open your browser and type the address
www.website.com/blog/
Step 7: Click on create a configuration file
Step 8: Click on Let's go
Step 9: In database name replace wordpress by your database name which you have noted earlier.
similarly do with username and password. don't change database host and table prefix.
Step 10: Click Submit
Step 11: Run Install Now
Step 12: Give your blog title and your email and cliick on Install Wordpress
Step 13: Click on Login
Step 14: Note down username and password generated by wordpress
Step 15: Now change your username and password, and stop reading my post and give me reputation.