“loops” is shorthand for “edgeloops,” which are the series of connected edges that form loops around your arms. The mesh deforms according to how these mesh loops are placed, so in areas where there’s a lot of bend (elbows, knees, etc.) it helps to have more loops.
More loops also means more vertices in those areas, so you can do more detailed weight painting there, giving more control over the deformation in those places.