Well, to be honest, the Latino/Hispanic category only exists in the US, and many people who are grouped into it are not exactly pleased.

You have to understand that Latin America and the Caribbean are very large, very diverse regions. Some countries in Latin America do not have geographical barriers to their neighbors: the reason there's two countries in this case is usually some kind of war or political difference (for example, Guatemalans are still sensitive to the dispute over Chiapas with Mexico). Latin America has many ethnicities: you have mestizos (or pardos in Brazil), lots of mulatos and Afrodescendents in the Caribbean and Brazil (not as much in other other countries), indigenous people (around 50% of Guatemalans are indigenous; Ecuador and Peru also have sizable indigenous minorities), Asians in some parts (São Paulo in Brazil, for instance, has many Japanese-Brazilians; but if they came to the US they would probably not be put under the Latino/Hispanic category), and then there are people of primarily white descent (which make up a majority in some regions).

Then there is also the fact that race is very fluid in many countries. It's often said for example that "money whitens"; i.e., wealthy people are more likely to say they are white on a census. Even though Brazilians may vary greatly in appearance, hardly anyone is of 100% European or 100% African descent (most people are of 30% European descent). The only reason they identify as a certain race is based on appearance and wealth. And some people are reluctant to self-identify; some creative census takers in Brazil put their race (cor, color) down as "cor-de-burro-que-foge" (the color of an ass when it runs away, i.e. an unidentifiable color).

Now, suppose a light-skinned Brazilian who self-identifies as branco immigrates to the US and declares himself white on the census (because, he reasons, he is white in Brazil; why not in the US?). The problem is that some people will lump him in as a Latin-American anyway, with many people who do not speak Portuguese and have very different cultures than his. He is no longer a white Brazilian: he is now a Latin American in the US, the same as the Guatemalan of Maya background, the San Antonio chicano, the Peruvian of Andean descent, the Paraguayan mestizo and the Colombian mulato. In short, his identity is defined not by the way he thinks of himself, but by the way people in the US see him. People will assume he speaks Spanish and loves tacos just because he is Latino/Hispanic, or in some people's minds, "Mexican".

His culture and all the other cultures of Latin America and the Spanish Caribbean are reduced to a single category in spite of their diversity, and consequently some ignorant people will assume that all the people in that category are identical somehow. I'm not sure how the rest of the Caribbean fits into this discussion.

TL;DR: Latino/Hispanic is a meaningless, semi-linguistic category that ignores the diversity of Latin America and the Caribbean and allows people to generalize about those who are identified as part of it.