The input side is the end one adjusts for to ensure good audio capture without distortion.
One it's digital you can play it as loud as you like.
0 dB is the absolute maximum value the Analog-to-Digital-Converter can encode. If "OVER" lights up and stays on more than mometarily you will record a constant maximum level signal with a flat top rather than the nice sinusoidal waveform of real sound. THAT could cause audible distortion at best and severe speaker/amp stress at worst.
Your task is to attempt to set a level that anticipates those loud sounds and leaves a bit of room for the outbursts. CD has so much dynamic range you shouldn't have to worry about losing the signal in the noise floor of the process. Whispering wind and crickets to roaring jet engines on the same recording is possible.
The difficulty in enjoying the entire dynamic range of such a recording is to find an environment that is quiet enough to hear the soft sounds and having speakers capable of reproducing the loudest sounds without adjusting the volume.
There IS another solution. Dynamic compression or peak limiting of the input.
http://en.wikipedia.org/wiki/Dynamic_range_compression
Go on eBay and search for dbx dynamic range compressors. They're available in pro and home-versions.
Some models have both selectable compression and expansion.
I personally own a lot of dbx home audio gear and I recommend it.
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