Definition
In Korea, the loanword orthography rules are the official spelling standard for writing foreign words in Hangul (the Korean alphabet) when they are used like Korean words. The government issued them in 1986, and the National Institute of Korean Language looks after them. They head off the confusion that comes from everyone hearing and spelling a word differently, so that all Korean speakers can communicate in one consistent way.
Why is it 초콜릿 (chokollit) and not 초콜렛 (chokollet)?
Picture a new product or tasty dessert arriving from abroad. One person says 초콜릿 (chokollit), the next writes 초콜렛 (chokollet) or 쵸코렛 (chyokoret). Now try looking the word up in a dictionary, or filling out an official document. It gets confusing fast, because everyone hears foreign sounds a little differently.
The loanword orthography rules are the traffic rules that sort this out. When a word from abroad moves into the Korean writing system, they open one standard path, so that anyone can write it and read it the same way.
In short, the rules are an agreement to reduce confusion and keep spelling consistent when foreign words are written in Hangul. Even when you meet an unfamiliar loanword, one standard spelling lets you understand it correctly.
Seven final consonants and the basic principles
The rules rest on a few big principles worth remembering. First, only seven letters are used as a final consonant (받침, batchim) in loanwords: ㄱ (giyeok), ㄴ (nieun), ㄹ (rieul), ㅁ (mieum), ㅂ (bieup), ㅅ (siot) and ㅇ (ieung). Because ㅅ is written instead of ㄷ (digeut), 'robot' is 로봇 (robos), not 로볻 (robod). In the same way, 'internet' is 인터넷 (inteones), not 인터넫 (inteoned), and 'biscuit' is 비스킷 (biseukis), not 비스킫 (biseukid). (These romanizations go letter by letter.)
Second, one sound in a foreign language is, in principle, matched to just one Hangul letter. If the same foreign sound were written with different letters depending on the situation, writing and reading would get messy. One-to-one matching keeps the rules simple and clear.
Third, when writing plosives (the sounds in the ㄱ, ㄷ and ㅂ family), the principle is not to use tense consonants (ㄲ, ㄸ, ㅃ). Thai, Vietnamese and a few other languages have separately set exceptions. That is why it is 카페 (kape), not 까페 (kkape), and 버스 (beoseu), not 뻐스 (ppeoseu). By avoiding excessive tense consonants, the standard protects the natural feel of Korean.
To be more precise: it is not a pronunciation textbook
Many people look at the loanword rules and wonder why the spellings sound so far from a native speaker's real pronunciation. But the rules are not a pronunciation textbook for copying native speakers exactly. They tidy up the writing so that Koreans, who use Korean every day, can read and write comfortably and naturally.
Copying the fine and varied intonation of a foreign language perfectly with Hangul letters is impossible because of how the languages are built. So the real purpose is to respect the features of the original sound while settling the word in a way that suits Korean speakers' communication, without straining the sound rules and spelling system of Korean.
Words that are already deeply rooted in everyday Korean get historical usage over these principles. Long-established loanwords such as 카메라 (kameura, camera) and 라디오 (radio) are not forcibly changed even if they differ somewhat from the original pronunciation. The familiar spelling is simply accepted.
Common misconceptions
The loanword orthography rules exist to imitate native speakers' pronunciation perfectly in Hangul.
Perfectly reproducing native pronunciation is not the goal. The rules are a standard that lets Korean speakers read, write and communicate in a regular way.
Where you meet it
'Robot' is written 로봇 (robos) with the final ㅅ, not 로볻 (robod). (It is not 로보트 (roboteu) because of the English-specific detailed rule for writing a final [t] after a short vowel as a final consonant.)
Instead of tense consonants as in 까페 (kkape) or 뻐스 (ppeoseu), plain and aspirated consonants are used, giving 카페 (kape) and 버스 (beoseu).
In one sentence
These are Korea's national standard spelling rules for writing foreign words in Hangul, set for consistency and easy communication.