The Loudness War

The phrase loudness war (or loudness race) refers to the music industry's tendency to record, produce and broadcast music at progressively increasing levels of loudness to create a sound that stands out from others. This phenomenon can be observed in many areas of the music industry, particularly broadcasting and albums released on CD and DVD. In the case of CDs, the war stems from a desire to create CDs that sound as loud as possible or louder than CDs from competing artists or recording labels.
However, as the maximum amplitude of a CD cannot be increased, the overall loudness can only be increased by reducing the dynamic range and distorting or clipping the waveform of the recording.
Initially, a loudness war started between FM stations competing for listener ratings. Subsequently, record labels began increasing the loudness of their releases, both on vinyl and on CD, resulting in a volume "arms race". The main reason for this practice is that when comparing two recordings with different levels, it is likely that the louder one will be regarded as sounding better. This can be attributed to the way in which the human ear responds to sound pressure at different levels: as our ability to respond to sound frequencies change according to differences in sound pressure level (SPL), the more the SPL increases, the greater the amount of low and high frequency content we perceive. Music with higher levels is easily heard and understood in noisy environments such as: riding a car, a train, or walking on a busy city street. Higher levels can also result in subjectively better sounding recordings on low quality reproduction systems such as: web audio formats, AM radio, mono television and telephones. Compounding this loudness problem is the fact that artists are more inclined to request that their mastered CDs match the loudness level of top contemporary CDs.
Apart from audiophiles and hi-fi enthusiasts, this practice has been condemned by several recording industry professionals including Grammy Award-winning mastering engineer Doug Sax, engineer Geoff Emerick (noted for his work with The Beatles from Revolver to Abbey Road), and many others. Even Bob Dylan has condemned the practice, saying "You listen to these modern records, they’re atrocious, they have sound all over them. There’s no definition of nothing, no vocal, no nothing, just like – static."
If a CD is broadcast by a radio station, the station will apply its own signal processing, which further reduces the dynamic range of the broadcast material to closely match levels of absolute amplitude, regardless of the original record loudness.
Opponents have also called for immediate changes in the music industry regarding the level of loudness. In August 2006, the vice-president of A&R for One Haven Music, a Sony Music company, in an open letter decrying the "loudness wars" claimed that mastering engineers are being forced against their will or are preemptively making releases louder in order to get the attention of industry heads. Some music bands are being petitioned to re-release CDs with less distortion. This may indicate a general public discontent to this practice, and a call to put an end to the "Loudness War".
Source: Wikipedia

More on the subject:
What Happened to Dynamic Range?
Dynamics & Dynamic Range
Everything Louder Than Everything Else
How CDs Are Remastering the Art of Noise
The Loudness War
Loudness