The upstream spec for this featue is available here
https://specs.openstack.org/openstack/nova-specs/specs/2023.1/implemented/fqdn-in-hostname.html

This change simple lifts the restrictions on passing stings with "." in the hostname filed for of a server and extend the max length to the max length of an FQDN 63->255

This is summarised here
https://specs.openstack.org/openstack/nova-specs/specs/2023.1/implemented/fqdn-in-hostname.html#proposed-change

we call out one misconception that need to be documented as a warning

https://specs.openstack.org/openstack/nova-specs/specs/2023.1/implemented/fqdn-in-hostname.html#other-deployer-impact

but there is no other deployment impact i.e. no config options for people to set to enable this functionality.

Microversion 2.94 is required to use FQDNs in the hostname field and
the API ref has been updated to note this for
server create, rebuild and update.

the release note for this feature can be found here
https://review.opendev.org/c/openstack/nova/+/869812/6/releasenotes/notes/microversion-2-94-59649401d5763286.yaml

or https://docs.openstack.org/releasenotes/nova/2023.1.html#new-features
"""
In order to make use of microversion’s 2.94 FQDN hostnames, the [api]dhcp_domain config option must be set to the empty string. If this is not done, the hostname field in the metadata API will be incorrect, as it will include the value of [api]dhcp_domain appended to the instance’s FQDN. Note that simply not setting [api]dhcp_domain is not enough, as it has a default value of novalocal. It must explicitly be set to the empty string.
"""
and here https://docs.openstack.org/releasenotes/nova/2023.1.html#upgrade-notes

"""
The 2.94 microversion has been added. This microversion extends microversion 2.90 by allowing Fully Qualified Domain Names (FQDN) wherever the hostname is able to be specified. This consists of creating an instance (POST /servers), updating an instance (PUT /servers/

), or rebuilding an instance (POST /servers/

/action (rebuild)). When using an FQDN as the instance hostname, the [api]dhcp_domain configuration option must be set to the empty string in order for the correct FQDN to appear in the hostname field in the metadata API.
"""