I don't really know much about the technical specs I'm afraid.
That said,
Every piece of gear with an input is designed to expect a certain type of signal.
There are different levels (voltages) and impedances of inputs and outputs, and line is one of the many types.
Line-level is, I guess, a man-made standard that we work at. It's a known quantity and more or less any piece of analog studio gear will happily 'talk' at line level.
I'm assuming there's a relationship to the physical limitations of tape or some other medium, but @
ecc83 would be the man to ask about that.
Raw signal out of an instrument or microphone is going to be much quieter than line level, so we amplify accordingly to get it there.
There's also impedance to consider and other things but I do not know enough to be telling you about that.
I think* line level is more robust in terms of picking up interference and noise?
Hopefully someone will confirm but I think if you had to do a 20m cable run and had the choice between mic/line/instr level output, you'd go balanced line.
I know that on my recording deck I can choose between mic and line, but I've never gotten what line means.
That switch is saying 'are you presenting me with a very low level signal that I'll have to amplify, or a line level signal which I can record straight to 'tape'.
Generally if you plug in a mic over XLR the switch does nothing, but some devices will let you plug microphone or line source over 1/4", which is where the switch matters.
If, for example, you got an mp3 player with line-output and hooked it up to a mic-preamp, you'd probably overload the mic preamp and distort a lot because it is expecting a much quieter signal.
Make sense at all?