Updated March 26, 2014
On many dialogs you will see the VOL knob and its associated peak meter. This control sets the master output level for the entire app, which determines the amount by which finished output is scaled before being converted to the PCM format used by the device. It can be seen as the 'logical' output volume, as distinct from the 'physical' volume controlled by the device's volume controls. This value also controls the relative volume of WAVE files produced by loop and song exports.
The PCM format imposes a maximum audio level, and if VOL is set too high, some output may be hard-limited to avoid numeric overflow. To prevent the distortion this causes, you should monitor the peak meter during playback; if either bar turns red even momentarily, the output has been clipped, and the master level should be lowered.
Subtractive synthesis can produce unexpectedly loud sounds, particularly when filters are in use, so you should also be prepared to lower the level or stop playback when you alter synthesis or effect settings.