It has many uses, none of which are breaking into a machine. It can be used as a backdoor into a system by providing a covert method of getting commands executed on a target machine. It can be used as a way of clandestinely leeching information off of a machine. Loki is touted as a firewall subversion technique, but in reality it is simple a vessel to covertly move data. With a proper implementation, the channel can go completely undetected for the duration of its existence.
Detection can be difficult.
If you know what to look for, you may find that the channel is being used on your system. The standalone Loki server program can also be a dead give-away. Disruption of this channel is simply preventative. Forged traffic can still reach the target host. This channel exists in many other protocols.