I personally always hated equalizers...how does it work with footsteps anyway? Doesn't it make judging sound position a bit more difficult?
Well, the regular equalizer just makes some frequencies pop up better. So if you know what frequencies are present in the sounds you want to hear (such as gun clicks, footsteps, doors and so on), you can increase their power. So you can hear those things more clearly among the rest of the noise. You can also use this to lessen the ambient noise on certain maps (e.g Sandstorm).
When all this is done correctly (and there used to be a different EQ setting for just about every map) it helped tremendously.
The reason it doesn't make it more difficult to pinpoint the direction of these noises is because the settings are constant so it is different to playing without them, but you get used to it.
So I suppose the loudness equalizer is sort of like SVM was on X-Fi - it makes it easier to hear sounds that are quite quiet - especially when there's little to no ambient sound - by amplifying them. This
can make it a little more difficult to pinpoint the distance the enemy is at since the strength of the action does not diminish with distance the way you'd expect. Plus, it usually depends on whether or not there's other ambient sounds around. So if you're on WC (where there's next no overall ambient sound), depending on the place you're at (or more precisely the local ambient noises there) you will hear far away sounds differently.
This took some getting used to, but I believe I got the hang of it back when I used X-Fi (I still have the card, but no slot for it).