In this poem, perhaps one of the most well-known of Keats' shorter works, we see a story of a knight who has fallen in love with a mysterious woman in the wilderness. The concept of "loitering" in a modern sense usually means someone remaining in an area, waiting for something or someone to appear, or possibly just waiting for something to happen. Its dictionary definition states "to stand or wait around idly or without apparent purpose." In Keats' day, this definition would have fit well with the image of a knight who is apparently lost: if not literally lost in the wilderness, he is lost in a world of fantasy and emotion.
He is "alone and palely loitering" and this describes his state since the mysterious young woman disappeared from his life. This information in the opening lines is presented as a question that the reader/witness asks the knight, and his response forms the rest of the poem, where he describes the woman he met. He is pale, "haggard" and "woe-begone" because he is obsessed and sick with love. He is hanging around, loitering in the place where he met her, hoping to see her again, and from the physical descriptions of the him and of the landscape, a fair amount of time has passed ("the sedge has withered from the lake"), and there is little hope that he will ever see her again.