What is this phenomenon and will an amp fix it?

Here's the deal: I use my desktop computer for all my music and video playing needs. To that end I acquired the Asus Xonar DX 7.1 dedicated audio card for it. It outputs audio at quite a big volume when I want it to. Definitely much more than your typical integrated audio chip, and that's great but the thing is, I can't really take advantage of that glorious volume.

When I plug in my speakers and turn up the volume to the max (on the Win 7 volume slider in the tray), music gets kind of "compressed" or "squashed". That's the best I can describe it. When there's a loud powerful beat, it becomes quieter. It's kind of like I was using some kind of a volume normalizing feature (which I'm not). And it's not limited to one set of speakers either. No matter what I plug in, it's always like that.

If, however, I turn down the volume to about 60% on the win7 slider and turn up the volume on the speakers themselves, it's fine. On speakers, then, it's not a problem.

The problem is when I'm watching a movie with my headphones (with music it's fine because I don't go beyond 35% for music on headphones), because then the phenomenon is, again, apparent. When I set the volume at about 60%, everything's fine. If I go higher to, for example 80%, or more to get the nice, powerful cinematic "BOOOM" effect, I don't get it because it gets "normalized" again.

I would like to know what this phenomenon is professionally called (so I can research it) and most importantly, would adding a headphone amp fix the problem? (in my mind, if I leave the volume at 60% and then amplify it, it would circumvent the issue but I'm not an audio engineer so I'd like to know if I'm right before I go and spend money on an amp)

To clarify, when the sound gets "squashed", there are no other audible artifacts. No clicks, pops, buzzes, cut-offs and such. It just gets quieter.

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You should keep your speaker volume up and control your sound levels using only the System 7 slider. If you drive up the volume using the System 7 slider while your speakers levels are set too low, you are pushing distortion by over modulating the signal. Right now your'e jamming your foot down on the accelerator while there's a brick in front of your wheels (resistance of the low setting of the speaker volume) and you're spinning your wheels causing distortion. Start with your speaker level volume set at half way, moving that level up or down until your find a range of volume you like using the System 7 slider as the controller. There's no reason you can't leave the speaker level at full volume, unless you're blowing out your speakers ((they're playing too loud) as you raise the System 7 slider.

There seems to have been some confusion over the actual problem. Your response relates to speakers. I don't experience this problem while using speakers. When I want the sound to be louder on those, I just turn up the volume knob on the speakers themselves, not in the Win7 volume slider.

The problem only occurs when I'm using headphones. Right now they are not amplified in any way (unlike the speakers which have their own built-in amplifier to work). A person on the AVforums (where I also posted this question) made me aware that the Win7 "volume" slider isn't actually for volume. It's for gain. So apparently, after a certain amount of gain they can no longer handle the sound in a way that would give me the volume I want.

The reason why, I think, is because there's not enough electricity flowing through the drivers to allow them to be so loud. In my mind, if I put more electricity in (i.e. use a headphone amplifier) they should be able to do that. But again, I'm not an engineer so I can't tell for sure until I've tried this (I don't know anyone who has a headphone amp so there's no way I could borrow one for testing). I need someone to either definitely prove me right or wrong on that.

Could it be a problem with max headroom or clipping on the output device itself due to too much gain?

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Clipping probably no. I say probably because the only way I had experienced clipping before is it adding some artifacts to the sound (specifically "farting" sounds. The easiest way to replicate this is to turn up the master gain slider, or all of the sliders in your favorite player's equalizer). If the term of clipping also encompasses the artifact I described (perceived normalization), please let me know since, well, I don't know.

I admit to not knowing what max headroom is. Please explain it to me in layman's terms.

Notice: because of my past posts on this forum you might think that I'm being ironic and I'm dismissing your responses. I'm not. I admit that my knowledge of the way sound works is somewhat limited so I appreciate all responses to this thread that give me some legitimate knowledge on the subject.

Have you gone into Playback Devices with the headphones plugged in and adjusted there? I used to have the same problem with headphones and it turned out to be because I never set up the properties change when the headphones were connected and it was still acting like a 5.1 speaker set up diverting a lot of the sound into different channels that didn't exist on the headphones...