Significance of loopback interface

Introduction

Laymen explanation

If you are a networking engineer and you want two processes running in same machine to talk with each other using TCP/IP, then you will not wish to use physical interface for the same. Otherwise, communication may break if physical interface goes down (may be due to cable is not plugged-in) or physical interface IP address is changed. So, it is better to have a virtual interface which apperas similar to physical interface without problems of physical interface. Loopback interface helps in this regard.

Technical explanation

Most of the addresses you configure on your device are physical interfaces. However, the loopback interface is a virtual interface—an interface not associated with any hardware or network. While physical interfaces might be removed or their addresses changed, the loopback address never changes.

The local loopback is a "virtual" network driver that exists on all systems that support TCP/IP. A client that is requesting data from a network service running on the same machine should use loopback IP to reach it, instead of any "real" IP address that might be configured, as this is guaranteed to be functional no matter the state of the physical network interfaces (which may not work if, say, there's no network cable connected to the NIC).

Implementations of the Internet Protocol Suite include a virtual network interface through which network applications can communicate when executing on the same machine. It is implemented entirely within the operating system's networking software and passes no packets to any network interface controller. Any traffic that a computer program sends to a loopback IP address is simply and immediately passed back up the network software stack as if it had been received from another device.

Unix-like systems usually name this loopback interface lo or lo0.

Various Internet Engineering Task Force (IETF) standards reserve the IPv4 address block 127.0.0.0/8, in CIDR notation and the IPv6 address ::1 for this purpose.

Reference

https://www.quora.com/What-is-the-purpose-of-a-local-loopback-interface-127-0-0-1

https://www.juniper.net/documentation/en_US/junos13.3/topics/concept/interface-security-loopback-understanding.html

https://en.wikipedia.org/wiki/Loopback