I will put my response in context example. In my (work) hosts file, I have entries such as: 127.0.0.1 kona.kontera.com - with my loopback address.
The idea for this is that when there is a link in a web page to kona.kontera.com, which is one of those stinking in text ads, that the URL will resolve to local host and in doing so it will bypass loading the ad.
Another reason why someone would want to put the loopback address in hosts is if you want the system to check it self (i.e. its own servers) for information. For example, if the server is the LAN DNS server, you want it to loop back on itself to access the resolver.