In PostgreSQL, every table name serves as type name automatically. So you can just declare a variable of that type in PL/pgSQL.
CREATE FUNCTION foo()
RETURNS void LANGUAGE plpgsql AS
$func$
DECLARE
q1 foo;
q2 bar;
BEGIN
FOR q1 IN
SELECT * from foo
LOOP
FOR q2 IN
SELECT * from bar
LOOP
-- do something with q1 and q2
-- since q1 and q2 are well known types, you can access columns
-- with attribute notation. Like: q1.col1
END LOOP;
END LOOP;
END
$func$
A FOR loop works with a built-in cursor. There are also explicit cursors in plpgsql.
You could also just declare variables of the generic type record. It can take any row type at assignment automatically. But special rules apply. Be sure to follow the link and read the chapter of the manual!
While it's often convenient to have the function return SETOF <table name>, returning SETOF record is not as convenient. The system does not know what the function returns this way and you have to add a column definition list with every call. Which is a pain. Details about table functions in the manual.
Often there are more efficient solutions with plain SQL, though. Looping is a measure of last resort, when you can do things in one scan where you would need multiple scans in pure SQL.