Basically it's an insert point between the preamp and power amp.
Say if you use a delay and hi-gain on your amp, with the delay before the amp all repeats will get smeared together and practically disappear while you play, and you'll only hear delay "between" your notes.
If you use a reverb in front all reverb will be distorted and messy.
Now using the the effects in the loop you'll hear the reverb and delay much more clearly and you'll have more control. IMO, it's a must have.
My favorite way to realize this is post-amp, either at the desk after tracking or in the Freyette Power Station when modifying my base tone live. The PS is such a great tool and allows you to add a loop to any amp.
Yeah, part of me wishes my amp didn't have its state of the art loop, and I had a Power Station instead, just for the loop. That way everything is post amp, closer to the studio. But having a loop is better than not, for time based effects.
I have a Power Station that I got primarily for recording, not the attenuator or the loop--those are just a bonus. I'd never had an amp with an effects loop. I should mention that I'm not big with effects anyway, just some boost sometimes, mostly for Fender single coils, and a bit of reverb or delay for amps that don't have reverb.
So I ran a reverb with the loop, and yes, it does sound really good. I can see it. On the other hand, if you're like me and use it minimally, I wouldn't go out and get a new amp just to have an effects loop. It's not like they sound bad without one. I know some people are really into time based effects and pushing them, and that's cool of course, and I can see them wanting, even needing an effects loop.
A lot of that depends on the sound you're going for, especially where you get your distortion from.
If you're running a totally clean amp, all distortion from pedals (or no distortion) then having your delay/reverb/modulation after the drive pedals is all you need.
The place where effects loops work great is amps that get their distortion mostly from the preamp, then you can run d/r/m after distortion and before the power amp (actually before the PI which is a preamp tube but functions as part of the power amp) and get great results. A lot of Mesa amps, Dumble derivatives and many other dual channel amps work this way.
If you're using a vintage style amp where the distortion is created by the combination of preamp and power amp (and maybe transformer and speaker) distortion then no effects loop is going to help. You either have to add effects AFTER the microphone (mixing board) or attenuate and reamp (like the Power Station which has a post-power amp effects loop).