The way Christo worded was an excellent way to think about it- I've never actually thought of threshold in that light - so thank you for that Christo!
I can tell you in my words the way that I use and manipulate threshold on my particular MD (Fisher F5) to get it to do what I want it to.
I think of it as a volume to signal ratio, if I'm hunting a trashy area I basically run my threshold setting lower to hear less trash. Be warned though that when doing this the whole time you hunt, could cause you to miss good targets! Using it in this way is pretty much giving up sensitivity to keep the MD quiet- to listen for targets that have a "better chance" to be something you might want to dig.
The opposite of that is probably already what's in your head now- higher threshold levels will amplify the sounds of tiny, or deeper targets. The downside to running my MD this way is that you hear EVERYTHING in the ground!
I don't know about other detectors, but the F5 could be used for the sole purpose of intentionally finding red clay when set up like this. One spot I hunt along the Mighty Miss, I simply can not hunt with positive threshold numbers (at least not with any amount of gain to get good depth) because of the way it acts due to red clay.
If you ground balance, then adjust the threshold and gain settings together- you can almost always get the MD to act the way you want it to.
If you're just doing casual coin shooting at the park or beach I'd say just run the threshold level at wherever its comfortable (hummy or silent) for you. If you are Gold prospecting or hunting deep relics- you are gonna have to play with it some- to hear, or not hear,- what you are/ are not looking to dig!?! Lol
Practice man, that's the exact phase I'm learning right now with the F5. I plan on doing a LOT of relic hunting this year as soon as it warms up a little, so I've been experimenting a bunch with it- sorry for the long response but I was kinda excited to see someone else talking about the use of threshold?!?!