From Sage Advice Compendium (2025)
Species Traits
Does the Halfling's Naturally Stealthy trait allow them to hide while observed?. Normally, to take the Hide action, you must meet the following criteria:
You must be Heavily Obscured or behind Three-Quarters or Total Cover.
You must be out of any enemy's line of sight.
The Halfling's Naturally Stealthy trait allows you to bypass these criteria if you're obscured by a creature at least one size larger than you. However, you still must make a Dexterity (Stealth) check as you normally would when taking the Hide action, so there's no guarantee of success.