Numerical calculations, steady as well as unsteady, of flow in a turbine stage with a tip shroud cavity elucidate that the loss-generating flow features consist of tip seal leakage jet, the interaction of cavity exit flow with main flow, the partially recirculating cavity inlet flow interaction with vane wakes, and injection of leakage flow into the shroud cavity. The first two flow features, namely, the tip seal leakage flow and mixing of cavity exit flow with main flow, dominate while the injection of leakage flow plays an indirect role in affecting the loss generation associated with cavity exit flow. The tip shroud cavity flow essentially consists of a system of toroidal vortices, the configuration of which is set by the cavity geometry and changes when subject to unsteady vane–rotor interaction. The role which the toroidal vortices play in setting the cavity inlet recirculating flow pattern and loss generation is delineated. It is suggested that there exists a link between the inlet cavity sizing and the toroidal vortical structure. The computed results appear to indicate that the main flow path approximately perceives the presence of the tip shroud cavity as a sink–source pair; as such a flow model based on this approximation is formulated. Loss variations with tip gap height and leakage flow injection are assessed. Results show that the expected loss due to mixing has a functional dependence on the square of the difference in their velocity magnitude and swirl. The tip seal leakage jet loss scales approximately linearly with the corrected mass flow rate per unit area over the range of tip gaps investigated.