The output level setting of the WiiM indeed only affects the analog output. I have not seen any circuitry that would scale the gain in the output stage (like RME does in the ADI-Pro afaik). As far as I understand, it's just another "knob" that uses the digital volume control inside the DAC chip.
Edit: i.e. using this setting does reduce the available dynamic range of the DAC just like using the volume control. Please correct me if I'm wrong. Switching the gain in the analog output stage would "not" do that.
I'm using the WiiM Pro together with a SMSL D-6s and a pair of active Genelecs. When listening at low levels, the volume control of the WiiM is just too coarse and the minimum volume too loud. I do now use the volume limit functionality in the audio settings menue as a "pre-gain" in that situation (low level listening).
Using the "volume limit" functionality makes a lot of sense in case you are using the EQ and heavy "boost" anyway because this keeps the DRC (Dynamic Range Compression) from stepping in when running close to 100% volume.
I'm afraid many users of the WiiM are not familiar with this limiter-functionality inside the WiiM and do run everything at 100% leaving the volume control to the DAC or to some analog equipment. Doing this, this limiter will engage when you boost frequencies in the WiiM EQ - this is not what you want, except you like this somewhat "exhausted" sound that limiting produces ;-) . At the same time you can allocate 2 or 3dB for Intersample-Peaks (ISPs).
Running into this limiter can be avoided using an appropriate "pre-gain" (-> volume limit in the audio settings).
Don't get me wrong, the implementation of the DRC is clever and a clean limiting (without added distortion) is in any case better that clipping.
See here for details:
https://forum.wiimhome.com/threads/does-using-eq-degrade-sound-quality-in-wiim-pro.6534/post-149817
This basically does the volume scaling for all outputs including the digital SPDIF and Toslink.
I'm using the D-6s at Vol = 96 (so just 2dB down from max) and do all volume control in the WiiM using Volume limit (stupid naming) and the normal Volume control accessible via Android or whatever. The digital data is transferred 24 Bit , so there are no concerns.
Edited heavily 9:51am