In the first few minutes of baking, loaves of bread will rise rapidly as the gases trapped inside expand and the yeast has a final burst of activity (this is called "ovenspring"). Steaming within this time helps keep the crust soft. This allows the bread to continue expanding freely.
The steam that has settled on the surface of the bread also dissolves sugars in the dough. As the bread stops expanding and the steam begins to evaporate, the sugars are left behind to caramelize (yum!) and create a glossy crust.
Steaming is really only useful during the first 5-10 minutes of baking while the yeast is still active and the internal structure hasn't set. After this time, the crust needs its own time to set and dry out.
There are several different methods for getting steam inside your oven and the trick is always doing it without losing too much heat. Personally, we prefer to set a metal pan on the oven floor and let it preheat along with the oven. When the time comes, we slide the loaves in and then we either quickly pour a cup of very hot tap water into the pan or toss in a handful of ice cubes.
Some bakers advocate using a spritzer bottle to spray a mist of water into the oven, but we feel that this lets out too much heat and doesn't really generate the same amount of steam as using a pan with water or ice cubes.
Also, you can add steam when baking any bread, whether it's a simple white sandwich bread or a hearty country round loaf.
Give it a try next time you bake!
Related: Working with Yeast: Be Not Afraid!