I think that squads simply display the best of Dogfight. Not only in skill, but in conduct.
If you are in a well-known squadron, people will automatically know that you are an honorable, and most likely a formidable player. In-game, I can trust that a member from Enigma won't teamkill me, and at the same time prove an important part of the match.
It also promotes pride and confidence. To those who are in a squadron. -- you know that feeling you get when a fellow squadmate joins the match that you are in. When there's two or three of you, you feel unstoppable. When I see "[NLR] _______ has joined the game", I get a sudden surge of self confidence.
That is, unless they join the opposing team.
As for loyalty, it's definitely important. Squad switching is *okay*, everyone is free to their own choices. As long as you don't make it a habit to switch every week.
What's NOT okay is breaking the rules of the squadron you are in, especially for the benefit of another squadron.
That's just mean.