Definition - What does Loopback mean?
Loopback is a test signal sent to a network destination in order to diagnose problems. When the signal is received, it is returned to the originator, where any issues found within the loop are detected. The source of the problem can be found and the problem resolved by sending loopback tests to each piece of telephone equipment, one at a time, in succession.
Techopedia explains Loopback
Loopback describes ways of routing electronic signals, digital data streams or flows of items from the originating facility to a source without intentional modification or processing. This is a method of testing transmission or transportation infrastructure.
Internet protocols also specify loopback networks. The packets that are sent in an IP network with a source address that belongs to a loopback interface may cause trouble for buggy network software. The IP specification dictates that these packets are not to be transmitted outside the host.
Loopback network addresses are also used in multiprotocol label switching trace route error detection, which aims to avoid the delivery of faulty packets to end users.