The hidden partiton is inherently completely hidden - it lurks within the free space of the normal "outer" encrypted partition. There is no record of it, nor it's size, and you can only access it by providing it's own password.
There are two ways of mounting the outer encrypted partition. Only by it's own password, or also accompanied by the hidden partition's password to inform the system of the existence of the hidden partition.
If you mount it without the hidden partition's password, the system has no knowledge of it, and there's no way to know there's data to be found in the free space. Since it has no knowledge of it, the hidden data is not protected, and any writes done to the free space are potentially overwriting hidden data. Tough luck.
If you mount it by also providing the hidden partition's password, the system will know where the hidden data is, and the hidden data will be kept protected. It prevents any overwrites with an error. It will not move the hidden data around to avoid the overwrite, because this would compromize it's security - it will only prevent the overwrite with a write error (in fact also making the whole system read-only until a remount).
So in everyday use, you'd have to always mount it with both passwords - but if you're forced to provide a password, you can only provide the normal password, and there will be no way to know that you have created a hidden partition too. There is no huge "hidden.dat" -file or such, only free space, which if examined, will show random incoherent bytes.
Of course, if you're using the hidden area from an OS that's not itself running in a hidden partition, there is a risk that the OS or some of the applications used for handling the data betray the existence, or even store a cached copy, of files in the hidden partition.
In your case even the OS would be within the hidden partition, creating a hidden operating system. In this case, there's no risk of it being compromized. (Of course there are always risks from outside the system, like getting keylogged, monitored by hidden cameras, remotely viewed by psychics, socially engineered by spychicks, abducted by aliens, and so on... but you get the idea.)
You'd also need to have a decoy operating system on an different partition (using the outer encrypted partition for data), for plausible deniability. You'd also need to use the decoy quite often for non-sensitive work so that it wouldn't look suspicious. So yes, I would imagine size might become a problem there, since writes to the data area (that contains the hidden operating system within the free space) have a good chance of failing (when colliding with the hidden data) unless there's a lot of truly free space. But I'm not familiar with usage of hidden operating systems, and there might well be some countermeasure for this that I'm not aware of.
The TrueCrypt documentation has quite a lot of stuff about this, and it's well worth reading.