I don't have an amp with one, but from reading other threads, I think its so that you can have your effects chain as like, Guitar > Effects (like Wah) > Distortion (amp) [Effects Loop] > Effects (like Flange, Delay etc) [/Effects Loop] > Out to speaker.

From what I've gathered, its just so that the distortion from your amp doesnt effect all of the pedals that you want to use.
Just search around the forum, should be tons of threads explaining it in proper detail
Its basically where you put pedals like delay, flange, phase, trem, chorus, reverb. Not effects like distortion or compression or wah though.
To add to Kurdt's post. Those are the effects that you put AFTER the preamp stage.
Quote by Spl!nTeRgu!tAr
im getting the C-1 Hellraiser Baritone and replacing the EMG 81 with my Zakk Wylde EMG 81

****in great dude