In the story, the hermit is an impoverished outcast who lives a simple life. We are told he is "frail and weak" and is barely able to turn the soil with his spade. The hermit is a very wise man, however, and we discover why as the story progresses.
As a matter of practice, the hermit is an individual who concerns himself with the present. He initially ignores the king when the monarch approaches and asks him three questions. For his part, the king interprets the hermit's silence as disinterest, so he offers to do the hermit's work for him. The hermit, however, is not so much disinterested as he is concerned about the task at hand.
When a wounded man comes their way, the hermit turns the king's attention to the stranger. Since the stranger is in a bad state (due to this stomach wound), the hermit and king tend to the man's wounds. The hermit does not encroach on the king's interactions with the stranger; he gives the king room to come to some sort of understanding with the wounded man.
In this, the hermit is discreet as well as perceptive. He does not meddle where he is not needed. In the end, it is revealed the wounded man originally planned to kill the king as an act of vengeance for his brother's execution. Since the king saved his life, the stranger vows he and his sons will serve the king as faithful servants.
By allowing the king to help him and the wounded stranger, the hermit essentially answers the king's three questions. Rather than supplying the king with verbal answers to his questions, the hermit guides the king to the answers by encouraging him to engage actively in the tasks at hand. In the end, because actions speak louder than words, the hermit gets his points across clearly without resorting to sermons of any sort. In this, the hermit demonstrates his reputation as a wise man has been well-earned.