Effectively, the audio processing in the device (optionally) applies a degree of automatic levelling of volume. The idea is that you don't get that jarring jolt in a wired headset when listening to a quietly recorded song and then something much louder comes on and you have to quickly crank down the volume a few notches. And then crank it up again for the next song, perhaps.
Admittedly with much modern music there's usually a lot of normalisation that goes on in the studio, so most tracks (whatever the genre) should sound fairly similar in terms of volume, but Nokia is being mindful here that you might well put on audio files from other sources, whether podcasts or home recorded music, and so on. Under such circumstances, if you turn 'audio levelling' on, the audio processor now monitors the volume in real time and boosts or cuts it as needed, in order for your ears to receive a consistent experience.
This also applies to watching downloaded or side-loaded videos. You can get this 'Audio' update by simply going into the Store on your device - it should appear as one of the waiting updates. It's under 1MB, so will be quick to install.