We can compare a loopback adapter to a loopback interface on any router. Like the loopback interface on a router is not associated to any physical interface and is always up irrespective of the physical connectivity to the Router, similar a a loopback adapter.
This is what the internet says on loopback interface:
A loopback interface is a virtual interface that resides on a router. It is not connected to any other device. Loopback interfaces are very useful because they will never go down, unless the entire router goes down.
There might be a situation where in you would need to assign an ip address to your laptop and use it for any testing/application. You would not be able to use the ip address assigned to your physical interface useless the physical interface itself is connected to a lan cable. May be a situation wherein the ip address assigned to your physical interface is via dhcp from your Service Provider router and changing the ip on the physical interface is not possible.
Above were the couple of scenario’s where you might need to create a loopback adapter on you windows machine and use it.
How to create a loopback adapter on windows machine :
Click Start > On the search Program and Files type : hdwwiz
or Open cmd and type:hdwwiz it should bring up the Hardware Wizard.
Once you get the add Hardware Wizard window click Next > Click on Install the hardware that I manually select from the list.
Click Next > In the Common Hardware type list scroll down and choose Network Adapter.
Click on Next. Choose Microsoft under the Manufacturer list and Choose Microsoft Loopback Adapter under the Network Adapter list.
Click Next and Click Next for the Install Process.
Once Installed Click on Finish.
You are ready to go.
Goto your network connections ( shortcut type ncpa.cpl in the cmd window), you should see a Local Area Connection 1 or 2 depending on the number of existing connections.
You can disable/enable this adpater as required and right click on properties to assign ip address and use it .
I have use loopback adapter for connectivity reachability test in GNS3 and for simulating host machines.
Hope this would be helpful.