Like previously stated, it's main intent was to "boost" bass at low volume levels.
Unfortunately, from what I've seen in the real world, I have yet to come across a receiver that rolls off the bass boost at higher volume levels. Thus making the "loud" button into nothing more than just another form of bass eq. And also from what I've seen, most "loud" functions tend to be much more than just a small boost, and tend to be wider in spectrum than is needed.
On the other hand- many car receivers have "loud" functions that work too well. For instance, my stock Ford head unit has a loud function that you can not turn on nor off, and it is too exaggerated. At low volumes, it really pumps up the bass to compensate for how our ears work and for road noise. At high levels, it rolls the bass back to flat or perhaps even to negative levels. During use, peak bass levels are actually only attained at one quarter volume or less (!!), while the mid and treble frequencies operate normally, getting gradually louder as you turn the dial higher.