Downfall uses a loot system developed by Strangeteeth of (server here) called FuriousRaid. FuriousRaid (FR) is a modified and automated extension of the suicide kings style of loot distribution. That is, points are earned for time spent in a raid at a predetermined rate. The person with the most points wins the item and all his points are subtracted to zero. He then immediately starts earning points once again. All point tracking is handled by the FuriousRaid addon.

The Downfall version of this system encourages even loot distribution, loot for new raiders, respect for core raiders and fair hand-out of off-spec gear. It goes like this:

1. We use three separate pools of points:
   1. AP: "Armor Points" which are used for things like Tier set pieces and standard armor slots like helm, legs, gloves, etc.
   2. NAP: "Non-Armor Points" which are used for non-armor pieces like weapons, necks, trinkets, offhands, cloaks, etc.
   3. NRP: "Non-Raid Points" which are only bid out once everyone passes on an item that went to AP or NAP first.  Non-raid points are "trash" points used to bid on items you wouldn't use in a raid - things like 2h swords for holy paladins.
2. Raiders receive a point in each pool for every hour they are in raid while point tracking is turned on.  Points are accrued hourly from when the loot leader clicks his timer, not when a raider joins raid.  That is, if a raider spends one hour in raid then he has earned a point in the AP pool, the NAP pool and the NRP pool.
3. When an item drops, the loot leader determines what pool that item belongs to.  For example, if a [Twilight Mist] drops, it would be "bid" out on the NAP pool (non-armor).
4. The loot leader then spams the chat window with a link of the item being bid plus a long list of all people in raid and their points for that particular pool. 
5. It is then the job of the raider to whisper the loot leader about his interest in the item.  Something as simple as "interested" will register the raider in the system.  I use a clickable macro that looks like this "/w Quisjaa bewbs" so all I have to do to whisper Quisjaa (my raid's loot leader) is click a button.
6. After about 10 or 15 seconds, bids will close and the loot leader will print out the list of all the people that bid on the item.  Highest bidder wins.
7. After we determine that the item is appropriate for the winner's class/spec, the item is auto-looted to the winner and his points are reduced to zero in the pool that the item was bid out of.  In our example of [Twilight Mist] above, the winning raider would have his NAP points reduced to zero. 
8. If there are no bids for an item out of either the AP or NAP point pools, then the item "goes to NRP".  This is an opportunity for our raiders to bid on off-spec and "fun" gear.  This is where our healers get dps gear and where our dps gets to pick up something "for pvp".  No matter if the item is armor or trinket or weapons, it goes out on NRP to the highest bidder regardless of spec.  

 Some caveats to the system:

1. Bid winners are encouraged to use their brains.  Passing on a marginal upgrade may reward them in the long run since their pool will remain intact.  Or it may bite them in the ass if nothing drops they can actually use their points on.  Use your brain.
2. The raid leader can veto anything.  We trust our raiders, but sometimes there needs to be quick decisions to avoid drama.
3. We expect our raiders to have done their homework on what gear is good for their spec.  If that sword really is the best weapon a hunter can use while all the dps warriors want it, the hunter better be prepared to explain why.  As in, explain why using math and coefficients.  We used to use a ruleset that went like this: Usable by ► Applied dps ► Stats.  Lately we've been quite open as itemization has gotten more generic in 3.0 and beyond.
4. Downfall generally runs two 25-man raids (soon to be three).  Each raid runs it's own three pools of points. If you raid with Raid:Salmon you earn points only for Salmon, not for Kitten Brigade and visa versa.  Points do not transfer between raids.  However, if you have to sub in for another raid, you can of course earn points in that raid.  
5. If you are considered a geared, experienced and viable fill-in you are allowed to whisper the loot leader the word "wl" (without quotes) to be put on the auto-waitlist feature.  On this list, you'll accrue points exactly like the people in the raid.  This feature is to encourage our fill ins to log in to help out, as well as to take the sting out of having to sit a raider for composition.  You are required to stay on that character the duration of the evening or to inform us of the alt you'll be on instead.  "Waitlisting" and then logging out for the night will result in your points being deleted and you being banned from the waitlist feature. 
6. Do not attempt to game the system by anticipating an item going to NRP that you'll use frequently and then trying to win it on your NRP points, thus saving you from burning your AP or NAP points.  We've seen this before and it's pretty obvious.  We'll inform you that we'll nuke your appropriate pool to make up the difference.  
7. Non-enhancing items like mounts, bags and such are rolled and points are not wiped for the winner.  New raiders will sometimes be asked to refrain from rolling on these sought after rarities.
8. High-drama items, like legendaries, will be rolled between a pre-selected group of hardcore, dedicated and dependable raiders.  The goal is to bring all loot won in a raid right back into the raid the next day.  These are the people that have proven over, literally, years of raiding that they will do that. The appropriate pool will be wiped once the item is distributed.  If the item is part of a set or series (Glaives/Atiesh), the first winner will be rewarded with the subsequent pieces until completion. 
9. You get ONE spec.  That is generally what you're in the raid for. Hoever, we've asked a few dedicated and talented players to consider two specs that we alternate between as a raid. These players get first shot (AP/NAP pool bidding) for their main spec, but get priority bidding when an item goes to NRP. As an example, Noboru is considered a dps warrior first for the Kitten Brigade raid and a prot warrior second. Therefore, he gets to bid on dps plate and 2h swords out of his AP/NAP pools. However, when a tanking shield drops and all the tanks pass on it out of NAP, Noboru will have first dibs on it out of the NRP pool. 

So that's how Downfall does loot.  FuriousRaid has been very good to us for nearly two years.  There's next to no drama, loot is spread evenly, it's relatively quick and it's damn simple once you've seen it in action.