So what is the difference between these two effects? Depending on your outlook, either not much or a great deal. A limiter is usually set to a fixed threshold, and any signal that attempts to exceed the threshold is pulled back (attenuated) by exactly that amount needed to maintain the predetermined level. If the input gain is set way high, then all signals below the threshold (including noise) are boosted - in the extreme case so everything is the same volume (again including noise!). Limiters are "hard" compressors - the absolute level is fixed, and the compression ratio may be as high as 100:1 or more. This means that the input signal must increase by 100 "units" to make the output increase by one unit. Many limiters claim that the ultimate compression ratio is infinity, however this is probably an over estimation of the true figure.

A compressor uses much the same (or at least similar) circuitry as a limiter. While some compressors boost the level of signals below a preset threshold by a predetermined amount and reduce the level of signals above the same threshold, this type of compressor is most commonly used in noise reduction systems - an expander is used at the playback end to return the original dynamic range.

The majority of compressors use a threshold setting (like a limiter), and reduce the gain progressively once this is exceeded. Compression ratios of perhaps 2:1 are common, so the output will rise (or fall) by one unit for every two units of input change. A 50dB dynamic range (above threshold) is therefore reduced to 25dB (from softest to loudest signal). Unlike limiting, the compression threshold is typically set lower than the peak level - the actual threshold level could be anything from +8dB to -40dB, depending on the effect desired.

For example, a guitar (after suitable amplification) may produce transients of perhaps 5V peak, but yield an average level of only 500mV. This represents 10:1 or 10dB peak to average ratio. The peaks are produced as the pick strikes (or releases if you prefer) the strings, and the average is predominantly the normal decay of the note before the next is played. The VU meter (I refer here to real ones, not the stupid things you so often see that bear no resemblance to a proper VU meter) gives a good indication of the average level, and therefore the perceived loudness (VU = Volume Unit).

A PPM (Peak Programme Meter) shows the peak levels - no surprise there. Some meters, mainly electronic versions, provide both indications. A bar shows the average (VU) level, and a dot that "sticks" at some higher level shows the peak amplitude.

By using compression, the same guitar may have the maximum level reduced to perhaps 1V - the average level will now be higher as well (softer sounds are amplified, loud ones attenuated). Peak to average ratio may be reduced to 6dB or less, and the note will seem to just hang on forever ... well not quite, but you get the idea.

This sort of compression is common on percussion, strings, vocals - in fact almost anything. It is appropriate if (and only if) it provides the sound the artist wants - when compression is used just to make something sound louder, then it is better to just turn up the volume. This way, the original dynamics are preserved. Incorrectly used, compressor/limiters will flatten the sound, and remove the life and soul of the music. IMO, compressors are incorrectly used in the vast majority of modern recordings.