Minecraft wiki entry for Development_versions, associated text: Added "Directional Audio" sound option, for 3D Directional Audio simulation.
Uses HRTF-based directional audio to improve the simulation of 3D sound, making it easier to distinguish which direction a sound comes from (including if it is above or below the player).
Requires HRTF compatible audio hardware.
This option is best experienced with headphones.
Toggled off by default.