The LInux LOader is responsible for loading the Linux kernel into memory, passing it some parameters, and then running it. This is the first step in the boot process.

However, LILO also knows a few tricks more. If you have another partition or disk (device) appropriately formatted to be bootable, LILO can boot that, instead. It thus allows dual booting (or, more accurate, multiple booting, since you can have more than just Linux and Windows). For a Linux partition, you can select which kernel image you want to boot. This is mostly useful after compiling a new kernel. You don't want to lose the ability to boot the old one, just in case something doesn't work. Or you can decide at boot time which parameters to pass to the kernel you're booting (or place it all behind the symbolic label you give to an image).

To "recover" a LILOed disk (in order to re-install some versions of Windows, say), you can use "FDISK /mbr" from MS-DOS. The "/mbr" switch is undocumented, except in the LILO documentation.