Loopback interfaces are primarily used for troubleshooting, router management and protocol enhancement. Over the next three paragraphs, I’ll explain.
First, troubleshooting can be made easier with loopback interfaces. For example, If I am configuring MY network stack with a new network, I can create a loopback address on a router and test (ping) through the network to ensure I configured the routes and access-lists correctly. There are more uses, especially when it comes to ATM interfaces and such.
Next, some administrators use loopback interfaces for SNMP management. It saves on real interfaces and can provide the same info. I’ve seen networks that utilize loopback interface exclusively for SNMP, they do this to avoid sending their real IP”s over the Internet, or at least that is what he told me. I don’t much experience with this one.
Finally, OSPF can use the loopback interfaces in determining the next feasible successor in case a router goes down. OSPF uses the lowest numerical address as the best and you can configure loopback interfaces to accomplish this goal.
Loopback interfaces are commonly configured as such:
router#(config) interface loopback0 * you can use any number you want
router#(config-int) * from here you can configure it pretty much like any other interface (ip address, shut, etc.)
There is a lot of info on the net about this, as it’s a pretty in-depth topic. I hope this article just provides some basic info.