Gain and Volume Controls
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An amplifier's gain and volume controls work together to control the degree to which the guitar signal is "clipped." To understand clipping, we must look at the properties of audio waveforms. Sound travels in waves. The size, shape and distance between these waves are what we hear as volume, tone and pitch. Clipping is induced in a guitar signal by increasing the gain level (amplitude) beyond the inputs ability to receive it [That's an oversimplification but, you get the idea.]. The result is that the round part of the wave exceeds the input threshold and is squared off or "clipped." The more square a wave is, the more distorted it becomes. The diagrams below illustrate the relationship between gain and volume.
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