I almost feel stupid to say but i never fully understood how this really works. I read many articles and examples but still i never got the picture.
Until i read a blog of Kudrat Sapaev where it is easy and crystal clear explained!
The blog can be found at http://kudratsapaev.blogspot.com/2009/07/loopback-processing-of-group-policy.html
Bastiaan van Onselen