I'll assume you know what loudness means, simply how loudly the sound that you hear (the volume, or sound pressure level -- SPL).
Dynamic range is the difference between the softest and loudest sound.
In general, given two identical recordings but with one just a little louder, people will choose the louder one as "better". This can be taken to extremes, of course, but it is true for very small differences (~0.1 dB) in loudness. Manufacturers of music (etc.) sources know this, of course, so by making their offerings a little louder than the other guy's they may have a market advantage.
Now, how do you do that? If you want to make the overall level (sound) louder, generally a couple of things are going to take place:
- Limit the loudest sounds, using a hard limiter (clip the signal, which adds distortion that will make it sound even louder albeit "harsher") or soft limiter (compress the loudest signals by "rounding them off"). This way you can turn up the volume and put the loudest signal right at the maximum limit of the bits available (I am assuming a CD or digital format but the same idea works for analog recordings like LPs or tape; raise the volume to the very highest you can get away with).
- Raise the level of lowest signals so they are not so quiet; that is, boost the loudness of the softest signals.
The net result is loudness compression -- the overall signal is now much louder, but the dynamic range has been compressed so the difference between softest and loudest signals is less than the original, and the loudest sounds are pushed right to the maximum the recording media (CD, hi-res, LP, tape, DVD, BD, whatever) can handle.
This can be useful in a few cases. If the softest signal recorded is below the noise level of the media, say -80 dB, so it cannot be reliably captured or heard on a tape or LP, then boosting that signal so you can capture (and later reproduce it in playback) makes sense. Similarly, if the signal is too loud and would saturate (overdrive) the recorder, limiting (compressing) it means you can still capture it with (hopefully) minimal distortion. 120 dB dynamic range sounds really great on paper, but in the real world most of us do not have quiet enough rooms or powerful enough amplifiers with speakers sufficient to reproduce (playback) such a large dynamic range. In a car it is even worse, so compressing the signal's dynamic range (loudness compression) again makes sense.
The problem, as in many things, is when it is done to excess. Some recordings have been compressed so much that the dynamic range is only 20 dB or less, then pushed to the "top" of the recording media's dynamic range so the result is a song (or whatever) that is just LOUD. But louder wins, right? Well, not when the dynamic range is squashed so there is very little difference between loud and soft, and is so limited at the top end that it all sounds distorted. Nobody really wins a loudness war.
HTH, IME, IMO, FWIWFM, my 0.000001 cents (microcent), etc. - Don