Loop devices are how entire file systems can be mounted. If you have had any experience with most virtualization (eg KVM, Virtualbox, VMware, etc) the most common way Guests store data is in a file (aka virtual disk) which can contain an entire operating system or more on a specified file system. The "virtual disk" file with its contents is mounted for use by the Guest and generally protected from other access.
In the same way, it might be useful to mount an ISO file for access without burning the file's contents to an optical disk (CD or DVD typically).
There are other scenarios where it's useful to mount file systems so that they are accessible from the currently running system.
The file containing the file system that attached to a loop device is typically called a backing file.
Use losetup to manage loop device
dd if=/dev/zero of=~/file.img bs=1MiB count=10
losetup --find --show ~/file.img
mkfs.ext4 /dev/loop0
mount /dev/loop0 /mnt
umount /dev/loop0
losetup --detach /dev/loop0