The story has a historical background. It is set in a time when China was split into many smaller states fighting against each other and the king of Qin trying to conquer the other realms, which he later (not in the movie) accomplished and founded the first Chinese dynasty, the Qin dynasty, with himself as the first emperor of China.
So it is more or less based on an important era in Chinese history, which I guess every Chinese learns in their history lessons. But to which extent the king of Qin (the only historically existing person from the movie, I guess) and the specific events are depicted accurately, I cannot tell.
In fact there was also a historical person, Jing Ke , who tried to assassinate the king of Qin and I think he might have been the model for Jet Li's character, the assassin.
Some years before Hero there has been another movie set in this background, The Emperor and the assassin, which actually features the above mentioned assassination attempt by Jing Ke.
As to why this movie (Hero) was also interested by many "foreigners" (and I guess was quite successful all over the world)? Well, it is still a good movie, with a distinct visual style and an interesting story, no matter if you know on what it is based or not (though it can make it even more interesting if you know).