This paper presents a study analyzing the aerodynamic effect and loss mechanism of hub and shroud leakage flow for an axial turbine stage. A series of computational fluid dynamics computations were performed to investigate the effect of various complexity of leakage configurations on the flow field. It is found that a non-linear relationship between different flow systems emerges in the vicinity of both the shroud and hub leakage flow exhibiting a deviation of flow direction and a radial shift of flow pattern, while the efficiency drop caused by the shroud and hub leakage configurations can be added linearly. By analyzing the expansion process in the cooled turbine and the spatial distribution of viscous dissipation term, the loss sources which can be directly traced back to the flow phenomena were indentified. Based on the aerodynamic feature of the turbine, an analytical approach to separate and quantify loss sources was proposed and applied to analyze the turbine. Four kinds of loss mechanisms, referred to as cavity losses, mixing losses, extra losses, and the leakage work reduction, were observed and their contributions were eventually represented by efficiency penalty.