Some actions can only be performed with devices. loop devices allow linking file as device.
ie. if you have an image file of encrypted partition, you cannot perform "cryptsetup luksOpen imagefile.img cleartext_device", because cryptsetup requires a device as parameter.
but if one first links/mounts the image file to loop device, you can use luksOpen.
losetup /dev/loop0 /tmp/imagefile.img
cryptsetup luksOpen /dev/loop0 cleartext_device