To understand realistic game audio, you first need to understand real-world audio. You may not think about your sense of hearing since you've been using it since you were born, but there are several subconscious assumptions being made by your brain as it receives audio signals.
Imagine trying to pinpoint the location of something moving in a perfect circle around you, like the rings around Saturn. Do you know what lets your brain estimate the precise location of an object just based on what each individual ear hears? You might be surprised to learn that it depends on whether the frequency is high or low.
When listening to low frequencies, our brains detect extremely small delays in the time it takes the sound to reach each ear and bases its directional estimate on that. This basic principle is shown in the following top-down diagram, where you can see the distance the sound needs to travel to the right ear is greater than the distance...