The term Loot (or Drops) refers to the items, weapons, crafting materials, gold...literally anything "dropped" by mobs when they are slain.
Loot Quality / Quantity
The quantity of loot is random, but is also related to the uniqueness and difficulty of the slain mob.
The average quality of dropped weapons and items follows the same pattern: It starts with about 20% of the max damage/energy/AL for a level 1 foe, and increases linear to 100% for a level 24 foe, give or take a few random percent.
The pattern for gold is a little different: It starts at 5
for a level 1 foe and at increases at geometric rate to reach an average of about 42 for a level 12 foe and 140 for a level 24 foe. However, sometimes foes that will drop the double ("uncommon") or even the quadruple ("rare") amount of gold.
The chance of dropping a rare item is greater at higher difficulty levels as well.
Loot Sharing
To eliminate bickering or "stealing" another party member's "kill", the game engine assigns "loot turns" to each player as a means of equally distributing loot among all the party members. When an item is dropped, the game automatically assigns it to a specific member of the party, and for a period of time, only that player can pick it up. The next item dropped is assigned to the next member of the party, and so on. If the assignee doesn't pick up an assigned item within 5 minutes after it dropped, the assignment goes away, and anyone can pick it up.
However it is still possible to have an item "stolen" by another player. If a good item is dropped for a player that happens to be dead, all the party has to do is not resurect the fallen member and wait for the item to become avaliable to all.
This rigid system makes no distinction between player classes, even if certain items would be better suited for another member of the party. For instance, an Elementalist is just as likely be assigned a dropped Longbow, as a Ranger is likely to get a Fire Staff. The game also distributes the rarity of the loot among players. It is not known how this works, though it has been known to suffer quirks on occassion (especially when drops in an area are modified or balanced).
To be eligible for a drop, you must be within sight of the item when it drops (you can't be far away, off the radar).
Dropped gold is automatically divided among all members of a party in the area, regardless of distance apart, when anyone picks it up.
Note that NPC Henchmen get "loot turns" as well. Although dropped items assigned to Henchmen do not actually appear, they are taking in their share of loot along with the "real" players. Therefore, when farming for loot, it is best to bring only the minimum required to survive.
Farming
There is a system in place to prevent Farmers from gaining excessive wealth. If you continually run through the same area, killing the same monsters, eventually the treasure dropped will start getting worse and worse. It's unknown exactly when this starts happening.