Looping can be very beneficial. The teacher gets to know the learning style of each child in the first year, and then continues to use that knowledge to teach the second year. This continuity also has a positive effect on the group dynamics among the kids. The idea is that the better the kids know each other, the better they will work together, and the stronger their sense of community in the classroom will be.
Finally, looping can bring about better communication between parents and teacher. Both have more time to get to know each other and find ways to work together. Ideally, communication builds from one year to the next.