Many Audio Video Receivers (AVRs), and some Source devices such as movie disc players, will include Digital Audio processing options for Dynamic Range Compression or Loudness Adjustment. Should you use them?
In a word, No! Not if your goal is best quality Audio.
Loudness Adjustment was first on the scene -- appearing in the very first Sound Processors for Home Music and Home Theater. It is based on the idea the sensitivity of the human ear to both bass and treble audio frequencies diminishes (in comparison to mid-range frequencies) as volume gets softer. So a Loudness Adjustment attempts to compensate by boosting both lower and higher frequencies -- to a varying degree depending on the current Volume setting.
Dynamic Range Compression came later -- first appearing under names such as Volume Leveling or Normalization. The idea is to raise softer passages and reduce louder passages so the range of volume extremes is smaller. I.e., less need to reach for the Volume control to hear a passage that's suddenly too soft or squelch one that's suddenly too loud (such as a loud commercial interrupting your TV show).
With the advent of Home Theater equipment, Dynamic Range Compression became an even more likely feature for manufacturers to toss in, under the theory users weren't ready for the range of volumes likely to be found in the new, multi-channel Bitstream audio tracks -- PARTICULARLY given the special, Low Frequency Effects (LFE) channel carrying LOUD Bass! See my prior post on Calibration Discs for details.
Bitstream audio tracks can also include additional information DESCRIBING the audio found in the track -- called "metadata". And in particular, Dolby's TrueHD Bitstream tracks -- found on Blu-ray and UHD discs -- can include special metadata in aid of improved quality Dynamic Range Compression.
So traditional Dynamic Range Compression processing is something which gets applied at the time the Bitstream audio track gets decoded into LPCM. See my prior post on Digital Audio for details. Now decoding may happen EITHER in the Source device (i.e., when converting Bitstream tracks to LPCM Digital Audio for output) or in the AVR (i.e., when receiving a Bitstream track from some Source device and then doing conversion to LPCM as the first step of its own processing). And THAT means settings related to Dynamic Range Compression will likely be found BOTH in your Source devices and in your AVR. If you have the Source device set to produce LPCM output, then its setting for Dynamic Range Compression will be the one that applies. Otherwise, if the AVR is being fed the original Bitstream audio then ITS setting for Dynamic Range Compression will be the one that applies.
MARKETING NOTE: Dolby has gone further in this regard, licensing a feature called "Dolby Volume" to AVR makers. Dolby Volume uses Digital Signal Processing to provide a combo of Dynamic Range Compression AND Loudness-like volume adjustments at the same time. It's a newer, fancier algorithm, but basically a repackaging of the same ideas as above.
So what's the problem?
Well First of all, this is additional Digital processing of the audio -- altering the sound from what was originally authored. Depending on the quality of the implementation, the audio may sound more or less "processed" due to this, but inevitably it is different from the original.
Second, it's pretty common for such processing to come with its own limitations. For example, if you are playing a high bit-rate audio track -- say 96 kHz or 192 kHz Digital Audio -- it may very well be the case enabling extra Digital processing like this may require the hardware to down-sample that track to a lower bit-rate -- say 44.1 kHz or 48 kHz -- to keep within the limits of its Digital Signal Processing capabilities.
Also enabling such processing on Bitstreams which contain the new, "immersive" audio tracks (i.e., Dolby Atmos or DTS:X) typically will NOT preserve the information necessary to drive the Height speakers. So an Atmos track gets played as if it was a Dolby TrueHD 7.1 track, and a DTS:X track gets played as if it was a DTS-HD MA 7.1 track. There are even AVRs out there which support both Dolby Atmos and Dolby Volume, but won't play Atmos tracks AS Atmos if Dolby Volume processing is also enabled!
It's often quite difficult to ferret out whether such Factory Installed Gotchas come with any given piece of gear. But "value added" audio processing like this should ALWAYS be suspect. And if you don't NEED to use it, it's best to play it safe, and turn off such extra processing.
But Third, and even worse, there are plenty of examples out there of movie discs which are authored with BOGUS dynamic range metadata! If you play these discs with Dynamic Range Compression enabled the bass audio (in particular) will simply sound anemic!
So the Rule of Thumb when setting up new Home Theater gear is to look in EACH Source device, and ALSO in your AVR, for settings related to Dynamic Range Compression and/or Loudness Adjustment, and turn all that stuff OFF! Note such stuff may have been given clever Marketing names! So you may have to read between the lines to determine whether any given audio "feature" MIGHT really be doing Dynamic Range Compression or Loudness Adjustment.
Is there ever any reason you might want to use these features? Sure!
If you want to play content late at night and are worried about waking the baby (e.g., the next door neighbor who likes to complain!), you will probably lower Volume a bunch. And these audio processing features MAY make that lowered volume audio more tolerable -- particularly as regards to keeping dialog understandable.
But for any critical listening -- whenever you care about audio quality -- you want all this stuff Off!