"A loopback device is a very special device that allows you to mount a normal file as it was a physical device. Loopbacks can be encrypted: this becomes very useful sometimes.
"Consider, as [an] example, that you need to encypt a few files, nothing big, let's say 100 MB or so. Encrypting an entire partition could be too much. Then a cryptoloop could be the right solution to your problem..."
