My guess would be that when a cable is plugged into the Ethernet port, the adapter is active and Windows returns the IP address assigned to the network card on the open request. When you pull the cable, Windows informs any active sockets that the state has changed and your connection is closed by LabVIEW.
If no cable is connected, Windows returns the loopback address as the only valid adapter. If you explicitly request localhost, this is resolved to 127.0.0.1 and never uses the physical interface.
http://en.wikipedia.org/wiki/Localhost
Communicating with the loopback interface in an identical manner as with another computers on the network,
but bypassing the local network interface hardware, is useful for the purposes of testing software.