Guess who collects that interest. I'll bet most who read this will guess incorrectly.
The 401(k) account holder. Yes, you are paying interest to yourself.
It's one way to put more money into your 401(k) account, although it's taxable (in the year that you "paid" it).
The real disadvantage to the 401(k) loan is the lost opportunity: if the market goes up during your loan term, your money is "sitting on the sidelines". On the other hand, if it goes down, you have locked in your gain and are repurchasing shares at a lower price as you pay off the loan.
However, as someone else noted: the loan becomes due in full if you leave your job, voluntarily or involuntarily. That can be a problem.