I've been using the I/O button to set loops, and having just read the manual that is correct!
Press I/O to set the start point of the loop, then press I/O again at the end point of the loop and it will start looping.
The Loop button will make the CD play as normal if you are currently in a loop. You can then either set a new loop section with the I/O button as directed above, or press the Loop button again and it will return to your original loop.
Apparently!