Closed loop is exactly as it sounds, its a loop that's closed!
Basically though it takes water from the tank, directly from a hole, through a pump and squirts it back into the tank, often through multiple outlets, sometimes with an alternating current device such as an oceansmotion.
The benefits is that this water doesn't go to the sump, as such you don't have to fight against a head pressure, and lose velocity. It's basically another way to get movement inside of a tank without putting powerheads in the tank