Compression makes the quiet sounds louder. Actually, it makes the loud parts quieter, but generally you add gain after compressing, so the end effect is that quieter parts louder. The end result is that the entire mix sounds louder, without the peaks actually being any higher.
Threshold is where the compressor actually starts to take effect. For example, if you have the threshold set at -10 dB, anything below that will be unchanged and anything above that will become quieter. The ratio effects how much quieter those peaks become. As for limit, I'm not entirely sure what that's referring to.
Andy can probably explain all of this better than I can.