Normally, when a computer boots and a user logs into it, Group Policy works in that same order. First, it takes a look at all of the GPOs that are linked and filtered to the computer account, and then processes those GPOs—but remember that the computer itself only pays attention to the Computer Configuration parts of the GPOs. User settings are ignored because the computer doesn't care about those. Then later when the user logs in, the reverse happens. All GPOs linked and filtered to the user account will process, putting into place all of the settings from the User Configuration side of the GPO. This is how Group Policy works all day, every day.

When you enable Group Policy Loopback Processing on a workstation, it changes the GPO processing behavior of that computer. It essentially tells the computer to behave as if it were a user. Huh? Don't worry if you're confused, this is a strange concept to wrap your head around. We need to discuss the two different ways that Loopback Processing can be configured.