That's because 127.0.0.1 is a
loopback address. 127/8 is the range of addresses that are reserved for loopback. This can make it even more fun to mess with people because a lot don't realize that 127.254.195.71 will also point to the localhost.
Loopback is mostly just for testing the functionality of IP on your computer, but it has some other uses; like accessing services that are running on your own machine.
Check out this list of other special-use IP addresses: http://tools.ietf.org/html/rfc3330