If you are a bit confused on the true purpose of a compressor, this should open your eyes a bit.
There is more to compression than simple volume control.
Compression also plays a dynamic and rhythmatic role.
Lets say the E's below represents a sound over a period of time with no compression.
EEEEEEEE Now different compression settings can effect the sounds differently.
For example, if we want to catch the snap of the kick drum but don't want too much boominess you may want to put a fast attack and a longer decay which might look something like this.
Eeeeeeee  Notice the size of the letter representing volume changes.
Now if you wanted to just do a quick compression to control part of the sound but then let it bounce back up, you would have a shorter decay which would look a bit like this: EeeeeEEE This can be a good way of using compression on guitar to keep it under control in a mix, but also create a subtle rhythm with how that compression pushes a sound and then lets it go.
You might be saying "why is the sound getting quieter when the compressor is on"? That's because it IS pushing the sound volume down, but when you adjust the output volume gain the sound has more punch.
If i have a sheet of paper and tried to throw it at you, it wouldn't have much impact, but if i crumple that paper more tightly (compress) and throw it at you it will have more impact.
If you want to learn more on the subject, Mastering Engineer Bob Katz wrote a great book called "Mastering audio" that goes into compression really well.
I would highly recommend it.
Even though some of the information might seem fairly technical, it's definitely a good read.
Happy music making! Jason