Example: John's accident
John bought a new $10,000 car using a car loan provided by his dealer. The terms of his loan state he needs to repay a total of $11,000 to the dealer. He insured the new car at market value with a comprehensive car insurance policy. The moment he drives it off the lot, his new car turns into a second-hand car and is now worth only $9,000.
Immediately after this, John gets into an accident and completely totals his new car. Fortunately, he had comprehensive car insurance. He makes a claim and gets reimbursed for the total market value of the car, which is $9,000. Now he has no car and still owes his car dealer $2,000.
John uses his car gap insurance to cover the $2,000 he needs to pay the remainder of his loan. Without gap insurance, he would have no car and be $2,000 in debt.
* This is a fictional, but realistic, example.