The words loo, lieu sound the same but have different meanings and spellings. Why do loo, lieu sound the same even though they are completely different words?
The answer is simple: loo, lieu are homophones of the English language.
Archaic Place; stead.
in lieu of In place of; instead of.
A card game in which each player contributes stakes to a pool.
Chiefly British A toilet.
Definitions from The American Heritage® Dictionary of the English Language, 4th Edition and Wordnik.
Homophones (literally "same sound") are usually defined as words that share the same pronunciation, regardless of how they are spelled.