I've seen people talking about it but I've never really used it. Does it make sure the mods work together or something?

Yes. Say you have two mods, which both change the same NPC. Without the patch the .esp that is the furthest down in the load-order will overwrite any changes any other .esp has made to that NPC. With the patch you can combine the changes of both .esp-files and save plug-in slots.
While it's vital for Oblivion, I have never used it for a Fallout game; though that has also to with Wyre Bash messing with your load order. If you use it for Fallout3/NV you need to let LOOT resort you load-order.

Thanks for answering, I'll start using it. The only problem LOOT causes for me is that it puts certain mods in the wrong load order like FCO or the Joshua Graham companion and better burned man mod.

LOOT will sometimes order things wrong, however it is the best tool to use to sort your plugins and then you can make adjustments as needed based on mod author instructions or recommendations. It will help you catch things you might have missed.

Evmeister wrote:

LOOT will sometimes order things wrong, however it is the best tool to use to sort your plugins and then you can make adjustments as needed based on mod author instructions or recommendations. It will help you catch things you might have missed.

I just use FCO, with armour replacers, and the Joshua Graham companion mod with authentic burned man, so luckily it's not much of a trouble to sort the load order out.