Yes they can! For example:
<Loop type=taxonomy_term taxonomy=category>
<If loop type=post taxonomy=category terms="{Field id}">
<h2><Field title /></h2>
<ul>
<Loop type=post taxonomy=category terms="{Field id}">
<li><a href="{Field url}"><Field title /></a></li>
</Loop>
</ul>
</If>
</Loop>
In this example, the outer Loop is listing categories with their titles as headings. The If statement is testing whether a post loop exists for the taxonomy term, and the inner Loop is getting those posts as a list of linked titles. In the example the Loop context is being passed to inner loops via terms="{Field id}".
Does that answer your question?
