<p>I am starting a new web application in PHP and this time around I want to create something that people can extend by using a plugin interface. </p>

<p>How does one go about writing 'hooks' into their code so that plugins can attach to specific events?</p>

I believe the easiest way would be to follow Jeff's own advice and have a look around the existing code. Try looking at WordPress, Drupal, Joomla, and other well-known PHP-based CMS to see how their API hooks look and feel. This way you can even get ideas you may have not thought of previously to make things a little more robust.
A more direct answer would be to write general files that they would "include_once" into their file that would provide the usability they would need. This would be broken up into categories and NOT provided in one MASSIVE "hooks.php" file. Be careful though, because what ends up happening is that files that they include end up having more and more dependencies and functionality improves. Try to keep API dependencies low. I.E fewer files for them to include.