There are more uses for loopback interfaces but this gets the discussion started. Some protocols need to specify peer addresses (BGP, and GRE tunnels and IPSec are examples that come to mind) and it may be advantageous to use the loopback interface address as the peer address. If you are using AAA and an ACS server for authentication it is good to source the authentication packets using the loopback interface. If you want to telnet to the router you do not have to be concerned whether you are accessing it by its serial interface, its Ethernet interface, or any other interface if you telnet to the loopback interface address. If we want to ping an interface on the router to determine whether the router is up or not it is good to ping the loopback interface. We may want to source our SNMP messages from the loopback. We frequently want to use a loopback interface addresses for management purposes. Some routing protocols have the concept of a routerID and we frequently want a loopback interface address to be the RID (because it is more stable than any physical interface). We frequently want to use a loopback interface addresses for management purposes. The loopback interface can have many uses. The loopback interface can have many uses. One important aspect of the loopback interface is that it removes physical dependencies - you can not unplug a cable and have the interface go down (unless the cable was the power cable for the router).
When we say it is a virtual interface this means that it logically exists but it does not exist physically (there is no physical interface and no cable to plug into it). A loopback interface is a virtual interface that can be configured on a router.
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