Function: Ground loop isolators are used to remove the DC circuit path from the audio shield ground circuit.

Background:

1. The head unit's preout audio section is referenced to ground (the metal outer chassis of the head unit to be more precise). This means that the audio output's reference is tied to the mounting position of the head unit.
2. You already know that ALL conductors have resistance. This includes the vehicle's metallic chassis. Any time that you have current flowing through a conductor (which, as you remember, has resistance) you will have a voltage drop across the conductor.
3. Any accessory (lights electric motors etc...) which are grounded to the body will cause varying voltages across the conductor (the body of the vehicle). If you could measure the voltage from the ground for your amplifier to the ground for the head unit, you would see a very small difference of voltage even though they are both ground. To make matters worse, the alternator produces small pulses which aren't completely filtered out by the battery and/or capacitors. These pulses create noise that varies with engine (and therefore alternator) speed.

Note: This next paragraph will become agonizingly redundant. It is an attempt to make the concept clear to those who are new to car audio.

Ground Loops: Every piece of car audio equipment has some type of noise canceling circuit on the audio input circuit. These input circuits will, ideally, completely isolate the audio's shield ground from the amplifier's internal connection chassis ground. The amplifier's input shield connection (if properly designed) will have virtually no connection to the amplifier's power ground. It should take the signal from the RCA cable's center conductor, compare the center conductor's signal to the RCA's shield (the reference) and amplify the difference between the two. Remember the voltage generated in the body(voltage drop across the chassis from other electrical accessories)? Well if the amplifier used the ground in the rear of the vehicle (where the amplifier is mounted) as the audio reference instead of the shield ground (which is referenced to ground at the head unit's mounting position) as a reference, the voltage generated through the body would become part of the amplified signal. The amplifier would amplify the difference between the signal on the center conductor of the RCA cable and the amplifier's ground (in the rear of the vehicle). Some manufacturers use poorly designed input circuitry which allows the equipment's power ground to have too much of an influence on the signal (not enough isolation). This causes a small amount of fluctuating DC current to flow through the audio shield which allows noise (from the voltage drop across the chassis) to enter the signal path. The 2 ground paths create a ground loop.

Lame Analogy: For those of you who are more mechanically inclined, try to think of it as a brake cable for the rear brakes on a bicycle. You know that there's an outer casing and a center cable. If there was no outer casing (only a cable connected to the brake lever). The brakes would work properly only when the handle bars were in precisely the right position (straight ahead for this example). If the handle bars were turned a little to one side (let's say left), the cable would get slack and could not possibly tighten the calipers onto the rear wheel. If the handle bars were turned sufficiently to the right, the cable would tighten and the brakes would be applied no matter whether the brake lever was pulled or not. The brake cable's outer casing acts as a reference for the braking system. If the inner cable at the brake lever end moves 1 inch with reference to the casing, it will do the same thing on the other end (the caliper end of the cable). It does not matter how much the two opposite ends of the cable (as a whole) are moved (with reference to each other). The RCA cable provides a reference along with the signal to make sure that the signal is accurate when it reaches the other end. If you want add a 'ground loop' to the braking system, imagine a stiff rubber band connecting the brake lever to the rear caliper. If you adjusted the brakes to operate properly with the handle bars straight, the braking would not work precisely the same when you turned the bars to either side. The brake cable would dominate the braking operation and the brakes would probably work fairly well, but not perfectly because there would be 2 different forces trying to control the rear caliper. This would form the mechanical version of the ground loop.

Construction: A ground loop isolator contains an isolation transformer for each channel. The transformers generally have a 1:1 ratio which neither boosts nor cuts the audio level. The audio is magnetically coupled through the transformer's core. Since DC can not flow the transformer, the DC path is cut and the noise is eliminated.