Construction loans are a little more expensive, and require more documentation, than a standard mortgage. So why not just get a standard loan?
One of the requirements of a standard mortgage is an appraisal of a fully completed home. So, if you are buying a new home that is already fully constructed, and has been issued a Certificate of Occupancy, you can just get a standard mortgage. If, however, the home you're buying is not complete, or hasn't even been started, the builder will most likely require you to get a construction loan.
A construction loan allows the home to be paid for in stages or "draw" as work is completed. This allows your builder to pay the subcontractors and suppliers. Think of it this way; during the construction phase your loan, your loan is a line of credit.
Your lender will be doing inspections prior to every draw to confirm that the work has been done. Your title company will also collect documents called Sworn Statements and Waivers of Lien, to make sure that these funds are going to the subcontractors that did the work, and the suppliers that provided the materials.
If, at any point, you are dissatisfied with the work you can contact your lender and suspend any future draws. Before you do this please contact your build and see if the issue(s) can be resolved.