How do Protestants interpret the binding and loosing passage?

There are several ways of interpreting this passage. One is that priests have the authority to forgive sins. (Jesus was explicit in John 20:23 that Apostles have that authority). Another is the authority to teach- because if a rabbi 'bound' something, that meant he was making that the rule. If we bind and loose on Earth, then it is bound or loosed in Heaven- in other words, what the Church teaches as true actually is true. Another is the strange idea that the Church can distribute graces. It's like God gave the Church a storehouse of graces... so the Church can make a decision like creating indulgences, etc.

Another interpretation which would probably be more popular among protestants is the binding and loosing of demons. For a lot of protestants, demons are not just what you picture in exorcisms and stuff, but are actually the source of bad moods, inconveniences, anger, illnesses, etc. (Catholics tend to just attribute these things to nature). There is even a joke, how many pentecostals does it take to change a lightbulb? 5. 1 to change the bulb, and 4 to cast out the spirit of darkness. So you'll often hear proetstants binding and loosing' spirits- something you don't often hear Catholics doing.