lol, 127.0.0.1 is a genearl default IP, isn't it? There is no way that guy was more than 10 years old
127.0.0.1 is the loopback address for the local computer. (So is any 127.* address) When data is sent to it it never goes onto the real network, it's just treated specially by the system's network stack.
If a server listens on 127.0.0.1 it can only be reached from the local machine.
As for the truthfulness of this story, I kinda wonder about it. Making the remote computer unmount or otherwise hide a volume? Unless the remote computer already had a backdoor / trojan / etc running.
I know Microsoft Windows has lots of security holes but I've never heard of one that allows you to remotely unmount / wipe out volumes.
I would assume even a novice hacker would know something about the loopback interface anyways... maybe not (if this was really true).