In computing the term localhost refers to the location of the currently used system. It is a loopback device which is assigned the IP address127.0.0.1 in IPv4, or ::1 in IPv6, which can be used by TCP/IP applications to talk to themselves if this is needed.
Being able to communicate with one's local machine as though it were a remote machine is useful for the purposes of testing, and also to contact services (such as gameservers) located on one's own machine that are expected to be remote.
Humor
There is a common computer nerd joke, "There's no place like 127.0.0.1"
"127.0.0.1? Nice FTP site, but I already have that stuff."
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