Loess is a large-scale deposit which is easy to mine and widely distributed on the epipedon. The clay fraction of loess, also known as ‘loessial clay’, is a very important component of loess which affects its properties and performance. From a ‘materials’ perspective, the clay fraction of loess has been ignored. Recently, loess particles have attracted interest because of their potential applications. The focus in the current review is on the methods of modifying loess particles and their application as functional materials. The major components of loess particles are clays, calcite, and quartz, with the clays including kaolinite, illite, montmorillonite, and chlorite. Loess has a range of particle sizes, types, and dispersibilities. The particles agglomerate readily, mainly because cementation occurs readily in the clay fraction. Loess particles can be modified and their properties can be improved by compaction, separation, purification, acidification, calcination, surfactant modification, geopolymerization, and polymer modification. Loess-based functional materials have been used as sorbents, eco-friendly superabsorbents, soil and water conservation materials, humidity-regulating materials, and building materials. Separated and purified loess particles can adsorb metal ions and harmful elements directly. Surfactant-modified loess particles can remove organic compounds effectively. After modification with polymers, loess particles exhibit greater capacity for the removal of environmental pollutants such as harmful metal ions and dyes. As a superabsorbent, modified loess shows excellent thermal stability and swelling behavior. Calcined loess could be utilized as an energy-saving building material with good humidity-regulating performance, and geological polymerization has further expanded the scope of applications of loess in architecture. In summary, loess-based functional materials, which are inexpensive and ecologically friendly, deserve more attention and further development.