I don't understand how this "extends the dynamic range and lowers distortion"? Please elaborate.
The 18 dB attenuation on the analog outputs is post the DA converter, thereby attenuating its distortion, its contribution to the noise floor as well as the signal.
For a wide dynamic range analog amp, you would normally have the DIM engaged, unless you want to play loud. It's important to set the input gain of an analog amp/active speaker so you can take advantage of this function.