It attempts to keep volumes more evened out, yet still tries to maintain dynamic effects within these evened-out volumes so to speak. It attempts to keep the surrounds as effective, and the dialogue as intelligible. When you calibrate your system, its doing it for reference level AFAIK (75db + 30db). However, very few people listen to anything close to reference, and at these lower volumes the audio is not always effective as we would like it to be.
does it just keep the volume the same for different inputs?
No, that's what your IntelliVolume is for.
or does it,keep the volume down for like TV when a loud commercial or louder scene comes on?
Its supposed to help quite a bit with that, but honestly I would have only tepid hopes for that as we all know how bad commercials can be. I'm sure you would love to be pleasantly surprised, however!
I watch alot of TV and I am constantly turning the volume down or muting it during the commercials and louder scenes like CSI has on the show for example,
FWIW, more than one knowledgable user has claimed that they will never live without this feature after experiencing it. A must-have according to some folks, and I believe them. I don't need it, but I don't have TV programming anymore, and I often listen loudly enough.
I think that if you had to choose between upgrading to XT or Dynamic vol/eq, you would much prefer the latter. Yes the 876 has both, but there are other receivers at your price point that has the latter. I say go for it.
EDIT: wait a sec, doesn't the 806 already have Dyn features??? Did you run multeq yet?