As the term "Lookup" itself defines, you are finding something(looking for).
Basically, lookup is applied in FK's column to load the data in BO. It act a key to Load the data between two BO.
Consider an example:
You have two BO Postal Address and Transportation Zone it is mandatory these tables should have details of County. Instead of adding country column in these BO you created an another reference BO Country.
Now, you will define a relationship between PA & County and Transportation Zone and Country, both Postal Address and Transportation Zone have column as country_cd(fk) and you will set a lookup at column country_cd in staging of Postal Address and Transportation Zone while loading the data.
So, while loading Postal Address, country_cd will take reference from new BO Country.