Basically, Loki is stuck in Asgard (due to decree by the Big Daddy O) while Thor is allowed to continue loafing on Earth. So Loki (understandably) gets upset and decides to trick a junior Sorcerer in Dr. Strange (who is now learning to "master" levitation) into stealing Thor's hammer thus making Odin's favored son powerless. Loki can only send his spirit form to Earth to talk to Strange hence he can only use some of his powers while Strange is so green he looks as if he only just picked up a book of spells for the first time. Anyhow, Strange realises Loki's trickery and a battle royal ensues between the two.
I always wondered if they had a use besides a fashion statement. >:-D