A cable loop is when a power source has a cable that, one way or another, loops back to itself. Note: This only applies to power sources that can actually store power, like a generator or BatBox, MFE, etc. Windmills, Water Wheels, and Solar Panels don't apply, because they do not have internal power storage.
So a very basic example is an MFE with a cable that runs directly from its output slot into any of its input slots.
No Cable Loop
This next pic is NOT a cable loop. Remember, solar panels don't have any internal storage, and IC2 uses smart routing for its energy packets. Because of this, it only sends out energy if there is something that is demanding energy, and only machines with energy storage of some sort will demand energy.
Looping a cable around from an MFE (or similar) like the first picture causes the MFE to demand energy from that line, and the MFE puts out the energy to try and give itself the energy it's requesting. The smart routing only goes so far. The MFE has no knowledge that the machine requesting energy is itself.
Last two important points: Why would someone make a cable loop, and why are they banned? Cable loops are probably made mostly by accident. Like someone runs a cable from their MFE to their devices, then thinks "Hey, it might be a good idea to send any excess energy back to the MFE!" so they loop it back from there. The problem: MFEs don't output energy unless it's being requested, and then they only output the amount requested. There is no excess energy (if I understand this right) to loop back in. All this does is cause the MFE to constantly request energy from itself, even if the machines are off. So don't do that.
And they're banned because of the way energy is transmitted along an IC2 cable. Energy is transmitted in packets, and any wire can hold an infinite number of packets. The differences between the wires is how much energy will be in each packet. For example, tin cabling can only hold 1 EU per packet (IIRC), whereas copper can hold more, and gold more than copper, and so on. Insulating the cable doesn't increase the EU per packet or number of packets; it lowers the rate of decay. Now, the server has to read these packets, and keep track of every packet that travels through every cable, including how much energy is in the packet, how quickly it's decaying, where it's going, and how it's going to get there. If you have a cable loop, that causes the MFE to keep sending packets out that don't really go anywhere except to itself, accomplishing nothing, while adding extra strain on the server. In other words, they cause lag. Case in point: When I was taking that picture up there and trying to get another example, my FPS took a huge hit as my computer tried to keep up with the infinite energy my MFE was requesting from itself. I usually get 25-35FPS, and when I was trying to get more example pics, it dropped to around 7 fps.