The lambda probe measures the temperature of the burnt gases and from this can determine the efficiency of the engine and therefore how much fuel it needs.
Closed loop is where the fuel injection system is managed by the lambda sensor. Fuel input is determined by the probe. This is at tickover or very low throttle openings when cruising.
Open loop is when the actual map on the chip comes into play. This occurs at rpm greater than about 1500, or, when you whack the throttle open. The lambda sensor is ignored and the motronic uses the pre-determined fuel inputs from the map in the chip.
Some people feel that the motronic has a problem in determining whether the bike is at tickover (closed loop) or cruising at light throttle and I think this is where surging occurs for some but not all. If you have an agressive riding style and tend to swing on the throttle, the closed loop rarely comes into play.
One point which I cant get to the bottom of is, some people think that if the lambda probe is disconnected (when the bike is in standard trim and has not had another chip fitted) the motronic defaults to base mapping. Which may be the "get you home" loop. If you have an aftermarket chip in, then disconnecting the lambda may be OK. Expecially if the manufacturers recommend this. One must assume that they have taken any "base - get you home" mapping out.
Disclaimer:
Please feel free to ignore this information as usually I dont know what the f***k I am talking about.