Hippocampus is involved in feature binding for novel stimuli (McClelland, McNaughton, & O'Reilly – 1995, Knight – 1996, Hasselmo – 2001, Ranganath & D'Esposito – 2001)
It was demonstrated by McClelland et al. that, based on its role in episodic memory encoding, hippocampus can learn fast arbitrary association.
This was in contrast to neocortex, which they showed learns slowly in order to develop better generalizations (knowledge not tied to a single episode). This theory was able to explain why patient H.M. knew (for example) about JFK's assassination even though he lost his hippocampus in the 1950s.
Robert Knight provided evidence for a special place for novelty in hippocampal function by showing a different electrical response to novel stimuli in patients with hippocampal damage.
These two findings together suggested that the hippocampus may be important for binding the features of novel stimuli, even over short periods.
This was finally verified by Hasselmo et al. and Ranganath & D'Esposito in 2001. They used functional MRI to show that a portion of the hippocampal formation is more active during working memory delays when novel stimuli are used.
This suggests that hippocampus is not just important for long term memory. Instead, it is important for short term memory and perhaps novel perceptual binding in general.
Some recent evidence suggests that hippocampus may be important for imagining the future, possibly because binding of novel features is necessary to create a world that does not yet exist (for review see Schacter et al. 2007).