Can't speak for Boss, but usually in a loop you would set the unit to Line level.
Basically, if it distorts on Guitar level, use Line. If there is white noise on Line level, use Guitar.
The ears have it…
Both input and output set to line level seems to give the same output level as guitar/amp settings. While if I put line level (input) and amp level (output) the volume of the delay (mix pot) set to 50% is not equal to the dry signal