What does “Inspire Loyalty” actually do

Bioware have confirmed that there will be "active social" differences between the races, but there isn't anything that will affect the gameplay, just cosmetic differences.

Here's a list of the social abilities as we know of them at the moment:

• Human - Rally: Rallies nearby allies.

• Miraluka - Sense Force Alignment: Senses the target's alignment with the Force.

• Twi'lek - Parlor dance: Perform an unique cultural dance.

• Zabrak - Inspire loyalty: Inspires loyalty from nearby allies.

• Mirialan - Focusing Ritual: Undergo a focusing ritual to rest and recuperate spirit.

• Cyborg - Scan target: Scans target with a critical cybernetic eye.

• Sith - Punish: Punish your companion for his or continued failures.

• Rattataki - Shadowbox: Perform a series of mock blows, blocks and counters, warming up for the fight to come.

• Chiss - Salute: Prompts nearby allies to stand at attention.

Based on my experience from level 1-10, melee weapons glow strongly in their color during a critical hit. You might call it a flash.

This is very easy to observe with the Consular's starting force/melee attack.

A blindingly blue flash, along with lensflare on your eyes means that you have avoided an attack and should now use your Jedi Knight's Riposte ability. You will see the flash even when you lack the focus to use this ability.