If I chose a word like YEAR, and it tells me that 0/4 are correct, and every other word contains an E or an A, then there is no possibility of choosing a right answer. However if I then chose the word FAIL, which does contain an A, and im successful, then how could YEAR be 0/4 correct?

I'm afraid you don't understand how the minigame works. Not only must the letter exist in the password, but it must be in the same position as the word you select. For example, if the password is YEAR and you select FAIL then you have successfully found 0/4 letters. On the other hand, if you choose FAIR then you'll get 1/4 because the R in FAIR and YEAR match.

It takes position into account.

fAil, A is in 2nd position
yeAr, A is in 3rd position

I don't know how to describe this but it depends on the location of the character, not the letter itself if that makes sense.

Your example, YEAR and FAIL contain A, but they arent in the same place. It only says something is correct if it is the correct character in the correct spot. Something like MEAN and BEAN would have 3/4 letters correct.

Unless I misunderstood you, hacking is fine, you want to find the correct word in the correct spots. Try to look for words with similar letter composition with the minor changes depending on how many letters weren't correct.

its not that it contains the letter its where the letter is in the word using your example
year
the a is the 3rd letter
fail
its the 2nd letter
so when doing hacks look for words that have letters in the same position

Ok, thanks for clarifying that. So what is the point though? Wheres the fun factor? It doesnt tell you which letters you have matched so youre none closer to finding the correct word, unless im missing something? So far its been 100% guessing and a whole lot of quickloading to try again which makes it very tedious and boring.

well if you fell the 3rd attempt dont even go for the fourth just shut the computer off and activate it again

i had this same problem annex never really cared for hacking in F3 and well when NV came around i fig i'd learn check out this post on the wiki it helped me a lot getting a better understand of how it works and how to spot the patterns for words to make it easier/faster on your self
http://fallout.wikia.com/wiki/Hacking