A loudness feature artificially boosts the signal at a specified frequency. This has the effect of raising the bass signal in relation to the signal level for everything else.... the bass gets louder in relation to the mids and treble. Like said above, that's fine at low listening levels, to your subs/sub amp its just like the volume has been turned up (at that freq).
But once the system volume is increase while the loudness feature is left on, this artificial increase in the bass signal means it clips well before the signal for the mids of tweets does. This is why leaving your loudness on makes your bass distort prematurely... much like running a dreaded 'bass boost' on your amplifier.
A loudness feature comes in two basic forms: constant and variable. Constant means when its on, its always on, at a specific level (it always boosts the signal the same amount). The second type, variable, is a newer style that actually decreases boost as the h/u's volume is increased. Which type you have depends on the manufacturer. Years ago I use to be able to list off which ones were which way, but I dont really remember anymore. Who cares about loudness, right? //content.invisioncic.com/y282845/emoticons/wink.gif.608e3ea05f1a9f98611af0861652f8fb.gif If you have a reasonably critical ear, you should be able to tell if the loudness feature diminishes as you increase volume. Turning the loudness on and off at different volume levels will reveal a difference in change.
BBE is just another form of loudness.