The move helps defeat the common phishing tactic of using long and convoluted URLs that might start with what looks like a bank site address, throw in a bunch of symbols and other characters, and effectively bury the real domain. For example, one recent phishing attack listed by PhishTank.com used an address that started with "http://oceanbank.webcashmgmt..." and only had the actual domain much further along.
Locationbar makes it easy to foil such attacks by graying-out everything but the domain. You can still read the rest of the address, but you can immediately spot the real site name among the gobbledy-gook.
This highlighting is a built-in feature in the upcoming Internet Explorer 8 that an enterprising programmer, in true open-source fashion, made available for Firefox.
In addition to the safety feature, the extension also allows you to hold the Ctrl, Meta, Shift or Alt key while mousing over a part of a URL to open up a new window with only up to that part of the address. For example, if you mouse over the 'firefox' segment of 'https://addons.mozilla.org/en-US/firefox/addon/4014' and click while holding down one of those keys, you'll open up 'https://addons.mozilla.org/en-US/firefox' in a new tab and potentially save yourself a little time.
A few users on the add-on's comments page have reported that Locationbar may not work correctly with certain Firefox themes. If you install it and don't see any difference, try switching themes.
Note: The download link above will bring you to Locationbar2's Mozilla add-on page, with a button to install the add-on directly to your browser.