The disallowed loss is added to the cost basis of the new position, so it is deferred rather than lost, unless the position is still open at year end or in an IRA. Active traders who repeatedly trade the same stock can accumulate large deferred losses that make their tax year look far better than reality.
The rule applies to stocks and options; section-1256 contracts and, currently, crypto are outside it.
Example: sell 100 shares at a $500 loss on March 1 and buy 100 shares of the same stock on March 20. The $500 loss is disallowed and added to the basis of the new shares.
Related: section-1256, day-trading, sec