People who hold their noses experience a significant loss of taste, because about three-fourths of the sense of taste actually comes from the sense of smell. While the taste buds pick up sour, sweet, salty and bitter flavors, food has odor molecules that dominate the sense of taste.
Ingesting food does not just involve the mouth; odor molecules head through the tunnel connecting your mouth and nose, and olfactory receptor cells in the nasal cavity pick up on them. Sitting at the back of the bridge of the nose and just under the brain, these cells send information about smells to the brain. Any sort of nasal blockage, including holding one's nose, hinders the work of these cells.
Other causes can lead to impaired smell. When mucus gets too thick inside the nasal passages, odor molecules and air cannot get to those cells, and the brain receives no signal concerning the odor. As a result, flavors tend to run together and just about all food tastes the same. The tongue and mouth still pick up on the temperature and texture of the food consumed, but the taste remains largely a mystery. The odor molecules remain in the mouth, blocked from reaching their sensory destination.