Here's how it evolved:
* "Water closet" first appeared in the late 17th century, referring to a separate room in a house with a toilet and washbasin. This was a luxury in those times, as most people used chamber pots.
* The phrase gradually shortened to "W.C."
* Eventually, "W.C." was pronounced as "wee-cee," and then further shortened to "loo."
So, while the term "water closet" is a bit more formal, the slang "loo" is a more casual and widespread way to refer to a toilet in English-speaking countries.