This is the unquestionably the biggest sequence break in the entire game, and arguably the entire Prime series. It allows you to keep all the items you started the game with, which completely breaks open the earlygame. It would be difficult to measure the exact amount of time it saves compared to losing your items, but it's definitely many, many minutes.
In Prime 2, you start the game with the following 5 items, which you maintain with ILS:
Morph Ball Bombs
Some other notes:
Interestingly enough, if you lose your items, the game says you lost Power Bomb and Grapple Beam, although it is actually lying and you don't start the game with the items.
Currently, there is no way to perform ILS in 100%, since the missile expansion in Hive Chamber B (the room you lose your items in) doesn't exist until the room has been reloaded.
The new method of ILS can be done on any version of the game.
The first method to skip item loss was found in 2010 and used a trick called Infinite Speed. Essentially, you used Infinite Speed in Hive Chamber A to hit the cutscene trigger where you fall down the tunnel in Hive Access. However, since you weren't actually in Hive Access while hitting this trigger, the game just warped you out of bounds in Hive Access at the point of the trigger, and you were then free to wallcrawl and skip item loss. This method is 50 seconds slower than the new method and also has a 50% chance of crashing the game.
A new method to get out of bounds before item loss was found in 2016 by E-Dragon. On top of being hilariously simple, its is 50 seconds faster and has no risk of crashing the game, making it extremely convenient for Any% and Low% speedruns. You literally just jump through a hole in the ceiling in Hive Chamber A. From here, you can scan dash out into the aether, get to the skywalk, then touch the top of the tunnel and immediately move back to transition to Hive Access. You can also try a one-time aether jump while walking towards the tunnel, as shown in the video. While being slightly faster, this is significantly riskier.