It could
potentially make distortion worse if you are
close to
clipping
It doesn't know how high the wave-peak is going to be so it has to start pushing-down the peaks
before it actually clips.... Once the wave is squared-off it's too late. I don't know where it kicks-in but lets say -2dB below clipping... If the normal wave-peak goes to -1dB (over that made-up 2dB threshold) the wave will be compressed-limited and maybe the peak will be "pushed down" to -1.5dB. It still remains "smooth" and "curved"... It's not hard-clipped but it's slightly distorted. If the normal wave-peak is "trying" to go to +2dB it will be limited to 0dB (maximum power) but "pushed down" and smooth so not as-badly distorted as hard-clipping. If you push it too far it will still be squared-off at the top and bottom and only partially "softened".
I don't know if any amplifiers work this way, but with DSP it's
possible to attenuate the whole signal (with no waveform distortion) for a short period of time after an excess peak is detected, so the next peak isn't distorted. But without a delay you can't "look ahead" so at least one "wave" will be distorted. (i.e. Compressors have a release time so a short time after the signal returns to below the threshold, the level is no-longer altered.)