Basic question about DNS/hosts config

Hello,
I would like to understand please what is the correct way to configure the Hosts file for Kaltura. Suppose we have a server with a FQDN of kaltura.mydomain.com, a local IP of 10.10.10.1, a translated public IP of 195.100.100.100.
According to the installation guide, I need to have in the hosts file:
127.0.0.1 mydomain.com

I do not understand why this is setup that way, giving my domain the loopback IP.
Whatever changes I make to the hosts file, the solution actually seems to work, but I’ve noticed it went quite slower when I had mydomain.com resolve to 127.0.0.1.

Thanks for your insights,

Yes this is what they say in the setup guide.
So oferc, do you do all your setups with the following in the hosts file:
127.0.0.1 mydomain.com
?

Yes this is what they say in the setup guide.
So oferc, do you do all your setups with the following in the hosts file:
127.0.0.1 mydomain.com
?