In the microphone environment, we consider two related situations: playing with PA, and recording didgeridoo.
A new beast is in the spotlight! In case of dynamic treatment, it is the compressor (analogous to equalizer for frequency treatment). Compressors, as their name implies compress the sound; at some point and at some rate. Compressor technology and techniques are truly extensive, but we will consider only the most basic idea, reducing the dynamic range. And one has to be aware that this can be done in a good musical way, or in a bad unnatural way.
We can only hear the upper 40dBs of all sounds. The hearing range is around 120dBs. A recorded material’s frequency range is around 80dBs, and what is more important, modern aesthetics of recorded music tends to reduce dynamic even much, much more by compressors, limiters etc. In practice, all of this means that we can acoustically perceive greatest dynamic differences, when they are amplified live a bit lesser, and the least in case of recorded material.