From wikipidia:

In computer networking, localhost (meaning this computer) is the standard
hostname given to the address of the loopback network interface. 
...
On modern computer systems, localhost as a hostname translates to an
IPv4 address in the 127.0.0.0/8 (loopback) net block, usually 127.0.0.1.

Localhost is specified where one would otherwise use the hostname of
a computer. For example, directing a web browser installed on a system
running an HTTP server to http://localhost will display the home page
of the local web site, provided the server is configured to service the
loopback interface.

Communicating with the loopback interface in an identical manner as
with another computers on the network, but bypassing the local network
interface hardware, is useful for the purposes of testing software.