I didn't know you could back off after three misses. Good to know.
I was in the Arlington Library last night and had three terminals to hack and got them all on the 2nd guess. Thing is that to even get a crack at hacking, I have to change clothes to a Vaul uniform and pop Mentats to buff myself up. (Science is at 40 IIRC. Yeah, lame.)
I can't really explain how I grok them, but one thing I do is quickly skim the list of passwords looking for common suffixes that could cause trial and error time-wasting, like THINKING and DRINKING and STINKING; any one of those is going to give you a 6-of-8 right result. Better to try...oh, wait...
here's a good page of tips - why hurt myself trying to come up with examples?
These word choices can sometimes help you with the hacking minigame. For example, selecting a word that ends in -ing or -ned is usually a good choice. If the result is 3/N, then you probably have to choose another word that ends in -ing.
Imagine it like this: You select the word HACKING. This is not the correct password, but the result was 3/7. You then select another word that ends in -ing, such as MELTING. Note that the first 4 characters do not match, but the remaining three do. Typically, only a few words will contain the same ending letters.
One last tip: Look at the word. If you select HACKING, and the system says 4/7, the next logical choice would be HELPING or HURTING, or something of that nature. Since they list the words used in a handy column, simply match up the letters to see which ones are contained IN THE SAME SPACE. That is what the X/Y result is trying to tell you.
Wrong answers can be more helpful than partially correct answers. If you select HACKING and get 0/7 correct you can rule out any word with any of those characters. For this reason make sure your first few guesses don't have any duplicate letters in the word.