Dynamic Range setting - I don't get it

You need to think of it in terms of volume.  And the "full dynamic range" as the difference between the quietest and loudest portions of the audio track.  The "compression" they're talking about is probably raising the volume of the softest or most quiet portions of the audio track.

Maybe I'm completely off base here, but this is my uneducated opinion:

Compression in this sense may be a removal of something, but it's not quality (or, it shouldn't be).  In a quiet environment, humans can typically hear frequencies between 20Hz and 20kHz (depending on your age, but that's a different discussion).  So, via the "quiet" DD setting, you hear that entire range of frequencies.  However, when you factor in the ambient noise for a "normal" environment, you're not going to be able to hear all of those frequencies over the ambient frequencies.  Thus, the compressed audio may be the removal or adjustment of certain frequencies to other volumes or frequencies so that you can hear them over those ambient ones.  I'd bet there's some pretty intense math algorithms involved in determining what's "adjusted", since it's not able to know what kind of ambient noise is around, but this explanation does seem to make sense...  at least, to me!  ;D