When and why would one want to capitalize the director's loan account?

Answer 1

The director, who may or may not be, a shareholder, has lent the co. money. It could be that the co. doesn't have the funds to repay him, and if he's agreeable, the co. will capitalise the loan to share capital, so now he's a shareholder (if he wasn't one yet) or he's a bigger shareholder (if he was one already). If you want the journal entries, when he loaned the money to the co., in the co's books:
Dr Cash
Cr Director's loan

When the loan was capitalised,
Dr Director's loan
Cr Share capital

Answer 2

Capitalise Loan