It's not like Dolby or other theater style audio systems,
Well, sure, as those noise reduction systems (such as type A or SR used in theaters) also expand the sound after dropping the hiss below the noise floor, making it even louder and more dynamic than it normally can be on the media being used. Obviously it serves a much different purpose than hearing protection, which could use dynamic range compression alone (no expansion) as one method among a number of alternatives.
it a hard ceiling on sound level in which anything above a certain loudness (~80DB in most cases) is attenuated.
I don't claim to actually know much about how actual units on the market function internally, but hard clipping would sound rather harsh to the ear (even at moderate volume), so I presume that the ones that work as you've described would use some form of dynamic range compression. There are many parameters involved in compression, and therefore there are many ways to implement it, some rather simple and others far more sophisticated.
You can get cutting on the very bottom end units and possibly a noticeable delay in attenuation
I was under the impression that low-end units simply cut off the internal speaker entirely for a short while when excessively loud sounds (i.e. above a certain threshold) are detected. The ones I've tried sure seem to work that way, in any event. This makes sense because it's relatively simple and therefore inexpensive to implement.
but by the time you reach the mid-range units the 'do not pass' ceiling is a simple bar to manage.
Like I said, there are many ways to manage the dynamics of sound. The more sophisticated methods involve a fair amount of signal processing, which means relatively complex, "intelligent" embedded electronics, which in turn implies a fairly high price point. I think that there are a few such units around, which can make quiet sounds louder and loud sounds quieter at the same time without ever cutting out, at least based on some reviews and descriptions I've read (a weak argument, I know, but it could be done whether it currently is or not). I wasn't aware that there are mid-range units that sort of split the difference--I thought they were just really good at cutting in and out. It sure would be nice to know exactly how each product works without having to run tests on all of them. Probably the only reason that I haven't done so myself by now is that passive muffs and plugs have always sufficed for me--I can still (usually) hear what people are saying.