It rolls another drop RNG with increased chances. That’s why you sometimes drop 1 equip and sometimes 2 if you have some looting chance.
And yes, the additional chance is scaling badly, I expect it to be adding less than 0,025% per point in looting chance since looting chance was recently capped at 4000 on kTest.
Looting chance hence has to be some sort of x/y multiplier for the original drop chance of the item.
I expect the formula for the additional RNG that is rolled after killing the monster to be looking like this:
A = B * (1+ L/X)
where A= additional drop chance, B = base drop chance, L = Looting Chance value, X = unknown value [the product of B * (1+ L/X) must be smaller than 100, though, so you’ll never get to 100% drop chance of an additional item even with 4000 looting chance].
Maybe the formula is even more complicated with Logarythm, but I doubt it, since sometimes nothing drops at all but still triggers the rare item drop sound.
So maybe it even works like magic amplification, taking a random number between 0 and you maximum looting chance to emulate chance rather than adding a fixed drop chance.
Anyway, yes, the scaling is bad, people stated that around 600 looting chance is ± 1,3 times the base chance of additional equipment drop rate [though we can’t be sure since they count all drops, not only the ones obviously generated by looting chances (i.e. the ones dropping additionally when another item drops so you can be sure it was created by looting chance) and then averaging it over the items drop rate/chance].