Our ears are really nifty.
Because we have two ears — one on each side of our head — sound can take different amounts of time to reach each ear because one side will typically be further away from the source of the sound. From this, we can derive left/right position. This much is pretty simple, but it gets weird.
Our ears are also shaped differently, both front-to-back and up-and-down. This shaping changes how different frequencies of sound enter the parts of our ear we use to hear. Our brains, fantastic pattern-matching machines that they are, can “unscramble” this change based on our prior experiences with sound and figure out where the sound source must be in order to make the sound that we heard.
We *can* be confused, though! There’s something called the “cone of confusion,” which shows that in some cases, a listener will be incapable of determining, through their ears alone, precisely where a sound is coming from, because the “shape” of the sound would be the same no matter where it came from.
This is why you see people tilt their heads, or cup their hand to their ear, or move their shoulders — any or all of these motions can be used to induce a change in the shape of a sound which will restore our ability to localize it!
>And how do headphones simulate this
One thing you can do is install two microphones in a dummy’s head where human ears would be and play instruments at the arrangement. Then, all you have to do is play that recording back through headphones, and presto, you’ve re-created the original effect.
Multiple factors:
The slight delay from one ear to the other for left-right, mostly
The shape of your head and ears amplify or dampen certain frequencies at different angles
Also, the floor beneath you and the walls around you cause sound to bounce at you with slight delays and also shape which frequencies are boosted, which can also help determine the direction and distance of sounds
Essentially, sound takes time to propagate through space, and bounces around a lot, interfering with itself, and this all shapes the sound in many subtle ways, filtering or boosting frequencies, tiny echoes and reverberations, things like that, and your brain has gotten very good at extracting information over time.
Edit: regarding how to simulate this in headphones:
Audio through headphones is very “direct”, which means that unprocessed sound almost feels like it’s coming from inside your head.
But the sound can be processed to have the same kind of filtering and reverberation you would hear if it was played to you in a real space and transformed by the shape of your head and ears (called a “head-related transfer function” or HRTF), or simply recorded with microphones placed in a model of a head with ears , which can trick your brain into believing the sound is coming from a particular place.
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