Why is "Biloxi" mentioned in Chapter 7 of The Great Gatsby?

The significance of Biloxi lies in the fact that he has certain parallels to Gatsby. As the conversation in the broiling hot apartment develops, the various participants each add a little something to this legendary figure from way back when. This acts as an uncomfortable reminder to Gatsby that he himself is largely a figure of legend—a self-created legend burnished by the countless tall tales told about him by so many of his party guests.

"Blocks" Biloxi is not so much a person as an amalgam of different bits and pieces, each one contributed by the hazy memories of Tom's guests. Even then, he's not a complete person, as we never get to know the full story about him. Just to add to the confusion, Nick further complicates matters by referring to a Bill Biloxi from Memphis he once knew.

By the time the free-wheeling conversation comes to an end, we're none the wiser about who this character from the past really was. But one thing we do know is that Biloxi is every bit as much as an amalgam as Gatsby himself. Like Biloxi, Gatsby's whole identity is constructed out of bits and pieces, by scraps of legend and hearsay.

All that babbling about "Blocks" Biloxi and Bill Biloxi from Memphis has prepared us for the imminent unravelling of Gatsby's carefully constructed persona. Tom will expertly dismantle all the bits and pieces of Jay's identity so that Gatsby will become, like the mysterious Biloxi, nothing more than a dimly-remembered figure of legend.

This passage occurs just before Gatsby and Tom have a confrontation regarding who Daisy truly loves. They group (Jordan, Nick, Gatsby, Daisy, and Tom) are in Tom's New York apartment on a very hot day. They have little to talk about and the room is tense. 

The passage involving Biloxi is used to demonstrate how little the group had to talk about. When a potential coincidence is brought up, the group carries the discussion out to its extreme and boring end, wondering how many of them know someone named Biloxi. 

The references to Biloxi end as Tom uses this non-topic of conversation to begin harassing Gastby about his past. 

Biloxi, as a non-sense area of conversation, is used as the final lead-in to the confrontation as the non-sense and indirection is shrugged off by Tom. 

We also learn in this passage that as suave and indifferent as Jordan Baker can be at times, she is not capable of dealing with pressure situations. Her humor fails her. 

This becomes significant later in the story when Jordan fails to meet the pressure of the situation following Myrtle's death, effectively abandoning Nick to deal with things on his own.

What is the significance of "Blocks" Biloxi in chapter 7 of The Great Gatsby?

Daisy is recounting her wedding when marrying Tom, and she is trying to think of who fainted that day for then, as at that moment, it was very hot.  “Blocks Mississippi” had attended their wedding, fainted, stayed at Daisy’s father’s house for three weeks, and the day after he left her father died. The reference is significant in several ways. First, the name suggests that Daisy’s family had unsavory connections, for it connotes the world of gangsters rather than a world of wealth; second, reference to him and Daisy’s father’s subsequent death foreshadows the death that ends the chapter, that of Myrtle as a result of Daisy hitting her while driving Gatsby’s car.  Third, after recounting the incident, Daisy says “there wasn’t any connection” between Blocks’ visit and her father’s death, but there is a connection in her mind, for one thought clearly links itself to the other. To remember the death of her father through thoughts of her wedding casts a pale over that event, making it a less than joyous occasion in her mind—something that presages unhappiness and disruption.