I caught the Loach just last week, weighed 32 pounds. There isn't really a big point in doing it, but it makes you feel like you've completed everything in the game (if you've taken everything else). I guess it's just the satisfying feeling of having caught the Loach.
Here's how I did it...
First I played the sun song OUTSIDE of the fishing place, and went in the exact moment that the cuccoo made the sign of morning. (During it's cry)
Then I went in, got a fishing rod, ran straight to the log (didn't find the sinking lure), then to the little stream, and ran AROUND every rock (even those near the walls) and found it. It only took about 40 seconds to find it, so it shouldn't be to hard people...
Anyway, then I equipped the Iron boots and the Zora tunic, and walked into the water. From there, I looked carefully around, until I found it going up for air, then back to the bottom of the pond.
If you can't find it, go out, play the sun song, and go in at the exact moment of night. There's an 80% chance it'll be there if you do it right, so you should find it at least the second time.
Then I just kept tossing at it, and had the bait lying right in front of his face until he took it. (And he goes up for air, so you have to follow his movements).
It took about an hour just to get him to take the bait, he's really stubborn.
