"loop:" in Java code. What is this, and why does it compile?

It is not a keyword it is a label.

Usage:

    label1:
    for (; ; ) {
        label2:
        for (; ; ) {
            if (condition1) {
                // break outer loop
                break label1;
            }
            if (condition2) {
                // break inner loop
                break label2;
            }
            if (condition3) {
                // break inner loop
                break;
            }
        }
    }

Documentation.

As other posters have said, it is a label, not a keyword. Using labels allows you to do things like:

outer: for(;;) {
   inner: for(;;) {
     break outer;
   }
}

This allows for breaking of the outer loop.

Link to documentation.

The question is answered, but as a side note:

I have heard of interview questions a la "Why is this Java code valid?" (stripped the simpler example; here's the meaner one, thx Tim Büthe):

url: http://www.myserver.com/myfile.mp3
downLoad(url);

Would you all know what this code is (apart from awful)?

Solution: two labels, url and http, a comment www.myserver.com/myfile.mp3 and a method call with a parameter that has the same name (url) as the label. Yup, this compiles (if you define the method call and the local variable elsewhere).

That's not a keyword, it's a label. It's meant to be used with the break and continue keywords inside nested loops:

outer:
for(;;){
    inner:
    for(;;){
        if(){
            break inner; // ends inner loop
        } else {
            break outer; // ends outer loop
        }
    }
}