It puts the preamp in front of the effects. That is usefull if you use your amp's preamp for distortion and want it before the delay, reverb etc. If your amp has a switch to turn off the loop then that is also a handy way to get noisy pedals out of the signal path when you are not using them.
It's not uncommon to run distortion and compression inline with the guitar then put all the other time based effects in the loop.