I too am really new to Linux and it was only my situation that forced me to research this a little. I have a couple CD's of 8.1 and 7.1, but they messed up at boot or couldn't recognize my video card (respectively). So I downloaded the 9.0 .iso hoping it would have more up-to-date drivers. It did!
The loop device uses a directory like it is a CD-ROM (or I suppose you could make it like a floppy)
When I intalled, after booting the install rootdisks, I made two new directories:

mkdir /hd
mkdir /iso

This is because I had the .iso on my Windows partition and the Slackware installation uses the /mnt directory during install. Then I mounted my windows partition to /hd:

mount -t msdos /dev/hda1 /hd

(NOTE: replace hda1 with wherever your .iso file is)
Now I could access it, I mounted the .iso on /iso using the loop device:

mount -o loop -t iso9660 (filename).iso /iso

At this stage I just checked the loop was working by:

cd /iso

There I saw that instead of one big file, the loop had made it work as if it was the CD. I saw all the files and folders I would have if I'd copied the image to a real cd.
Then I started setup

setup

and when choosing my source said something like 'pre-configured directory'. I don't remember what it was, but it was pretty obvious though it didn't mention the loop device. I think this is because, conceivably, you could have the whole CD's filesystem copied somewhere.

I installed everything and it was done in under 20 minutes

For setting up partitions and things (for the install.zip thingy) if you only have windoze I'd recommend getting Basic Linux. It's based on slack 7.1 and runs in ramdisk. it is booted by loadlin from windows in dos-mode. If you have XP, it can be made into two floppies that will also boot themselves(oh wait, you don't have a floppy drive....)
Well, you mightn't want to try this out yet. I really should do it before I get you to guinea pig it for me. Once I've copied the .iso from my desktop I'll let you know how things went.