Spatial hearing refers to listeners' perception of the locations of sound sources, the environment that contains them, and their own orientation within that environment. There are many different facets to spatial hearing, including sound localization (can you point to a sound source with your eyes closed?), segregation (can you tell that two sounds have different locations?), perception of moving sounds or one's own motion through space, multisensory perception (does seeing a talker influence where you hear them?), and reverberation perception (can you tell, just from listening, what kind of room you are standing in?).
Spatial hearing allows us to localize sounds in our environment. This is an important aspect of directing spatial attention toward important events, and directing our eyes toward objects of interest. For animals, sound localization can be vital for finding prey, or knowing which way to run when escaping predators.
Less obviously, spatial hearing also helps us to understand important sounds, like speech.
Hearing loss is typically experienced as reduced sensitivity to sounds, possibly more so at some frequencies than others, or more in one ear than the other. There are many different causes of hearing loss, such as conductive hearing loss (sound does not properly reach the ear) and sensorineural hearing loss (damaged hair cells of the inner ear do not send a strong signal to the brain), but the key issue is that the audibility of sounds is reduced. In many cases, hearing aids that amplify the affected frequencies can partially restore audibility.