#1
Can someone tell me what compression does, it's on my amp and besides make notes louder does it do anything?
#2
It reduces your guitar's dynamic range. Basically making soft notes louder and loud notes softer, like a normalizer.
#3
I'm not sure about on an amp, but in the studio a compressor is used to reduce peaks in a signal. If the signal goes over a set threshold then the compressor reduces the gain by a certain amount [the amount being what the ratio is set to]. It then adds make up gain/output gain to make the signal louder after compressing, because compression reduces the volume.

So it's probably something similar.
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