Gain Structure and Optimizing Levels
In short, when setting levels start with the strongest signal possible, and then try to avoid boosting the noise floor by applying gain to the signal in any subsequent stages such as pre-amplifier, channel/mixer output, audio interface or PC input. This is especially important after a particularly noisy stage, such as an old amplifier or poorly grounded circuits.
The noise floor is that small portion of the signal that is usually masked by the proportionately much larger desirable signal, yet which becomes more audible if overdriving signals, or cranking up the volume of poor signals. Start with a good strong signal, run it though balanced connectors, spread any gain changes out nice and evenly (across different stages), and you should be fine.
For most purposes, an optimal recording level is such that when your input is at its loudest, the maximum peak on the Meter Toolbar red recording bars is around –6.0 dB (or 0.5 if you have your meters set to linear rather than dB). You can always increase the amplitude, if required, at a later stage in the editing process; amplitude adjustment (Normalization) is normally done as the last editing step prior to exporting production audio files.
Good pre-amps offer both dynamic performance and good signal-to-noise specifications.