I've been using Google Hangouts via Gmail and I'm wondering how the new "last seen" option really works. I know that it is used to show your contacts when you were last using Hangouts but does that mean when I was last talking to someone on Hangouts or when I was last logged in (seen with my status circle green)?
Based on this answer in Google Support, the "last seen" time indicates the last time someone was "seen" by Google Hangouts. They don't necessarily need to have been talking to someone at the time. (For instance, I'm not in a Hangout or otherwise chatting with anyone, but I've got a green circle next to my name for my contacts because I am logged in to Hangouts.)
If they're not currently available in Hangouts, they are either off-line, idle, or have turned off the "last-seen" setting in their profile.
Just now I checked, I will try to explain.
It doesn't show the time you logged in Gmail, or hangouts or when you chatted with others
It shows your friend ,when you have seen old messages/chatted with him.
It shows you when that particular friend seen you...he might be there in hangouts forever, but last seen you (opened your window) a minute ago, yesterday or 2day ago etc.