LOC is the price-protected sibling of market-on-close. Both trade in the closing-auction, which on major US venues is the single largest liquidity event of the day.
Exchanges impose entry deadlines and restrict cancellation after a cut-off, so an LOC entered late may be rejected. After the cut-off, published imbalance-messages let other participants react to the pending order flow.
Example: a stock trades 40.10 in the afternoon. You place an LOC sell for 2,000 at 40.00. The closing cross prints 40.06, which is better than your floor, so all 2,000 fill at 40.06. If the cross had printed 39.90, nothing would have filled and you would still hold the shares at the open tomorrow.
Related: auction-only-order