The first is pan, or the relative volume of the sound in the left and right ear. A crude way to simulate a sound source on the right is to turn up the level of the right channel. This isn't realistic, though, because our brain not only detects level differences, but also delay differences based on the arrival time of the sound at each ear. A sound directly in front of you is equal level in both ears, and the sound arrives at both ears at the same time. A sound to the right is louder in the right ear, but it also arrives at the right ear slightly before the left ear.
Interaural delay is a subtle yet important correction, but it gets even more complicated.
We live in a world of echoes and reflections, and our brain also uses these cues to determine the location of the sound. Sounds that are closer are louder, but they also contain more direct signal relative to reflected sound. Sounds that are further away are heard with more of the room reflections. But that's exactly why Audio FX3 was created. Inc. All rights reserved.