To explain the 'Loudness War' you need to first understand one simple fact…
Digital audio has an absolute 'loudest noise' - it is not like old analog, where you can always 'push the fader' a bit to get some more volume.
However you measure it, digital audio has a number of bits it can use to hold any given sample of sound. Being digital it can go as far as "all ones", it doesn't matter if it's 16-bit, 24 or 32 - the loudest any individual sample can go is "all ones" … 1111111111111111...
To a human, it's just some numbers.
Digital audio works down to sample level, each tiny part of the audio picture is built from an absolute number, representing a volume, or how much displacement your speaker should undergo at that precise millisecond.
The 'sound' itself comes from each of those 'speaker positions' one after the other, so fast that we can hear the overall waveforms the speakers make in the air as the cones move in & out.
So… if you can only make everything with an absolute maximum volume… how do you make it sound louder?
You use compression
Compression makes the quieter bits sounds louder - yet it leaves the loudest sounds where they are.
Magical, yes? …
When you do this you start to remove the 'punch' of those louder sounds. You can hear more sounds at louder volumes, but you still have your absolute volume limit which cannot be exceeded.
So what starts to happen is that the 'dynamic range' - the difference between the quietest & loudest sounds - becomes smaller. For a while this just makes everything sound more 'together' - coherence of the overall instrument mix - a technique that has been used for 50 years or more, to very good effect.
This works up to a point - & yes, it does make it start to sound 'louder'… but…
...after that you just squash & squash until it's all just the same volume. You can barely discern the drums are even there, because there's no longer any 'room' left for them to punch through.
Take it to extremes & all there is is 'frequency' with no dynamic… no more loud & soft, only loud…
Everything on 11
We now reach the digital age, everybody wants their song to be the most noticeable on the radio. How do we do this - well, obviously we make our song louder than the others, then everybody will notice us.
So, we compress harder
But… radio stations already employ thousands of pounds/dollars/shekels of very finely-tweaked compression routines for their broadcast - to give their station its signature sound & keep their audiences' attention.
see http://www.tcelectronic.com/loudness/products/ for just one company's range of loudness/EQ/compression-tailoring products for brodadcast radio, to see how much time & money is invested in doing this
Apparently, that wasn't good enough - we want ours to be louder
But… the radio stations already have…
…but we want ours - louder…
What actually happens eventually is that the more you compress your original track to make it 'louder' on the radio, the more the radio stations' existing compressors 'hate you'.
Their very expensive electronics can't cope with your insistence on being 'louder' & really start to make your records sound worse than they would if you hadn't done that to them in the first place.
… but… but… I want to be louder …
Eventually… people are learning that their records actually sound better on the radio if they actually allow them to breathe a bit …
Frankie's "Relax" still sounds great on the radio - they had already learned in the 80s how to 'push' radio compression to sound good.
The Eels' "Novocaine for the Soul" in the mid 90s was the first truly modern "loud" record - but they knew what they were doing & were having a private joke.
What followed was a 'fashion war' - it could never lead to a victor; only casualties on both sides.
The Loudness War was one that could never be won.
The Loudness War is fortunately now seeing an armistice in the near future.
A new standard in how we go about making our own record sound better not louder is actually on the horizon.
Have a look at K-System metering - a relatively recent proposal, gaining credence, to balance what sounds good rather than what is loudest.