" In simple terms why do you drop a bit to attenuate the volume digitally"
i suspect because, assuming all bits in each sample are used at maximum volume (amplitude), it takes fewer bits to represent each sample with the same resolution in the same digital audio stream at lower volumes.
i suspect because, assuming all bits in each sample are used at maximum volume (amplitude), it takes fewer bits to represent each sample with the same resolution in the same digital audio stream at lower volumes.