I've been postponing this but, after so many quesion about it, I finally managed to sit down and do it
Here's a diagram showing how the audio flows inside the MOD Duo:
The diagram is quite self explanatory. The colors show inside which component the things happen.
Please note the position where the LED meters read from.
Regarding the color of the LEDs, they correspond to:
off = signal below -30dB
green = signal above -30dB and below -12dB
yellow = signal above -12dB and below -3dB
red = signal above -3dB
blinking strong RED = 0dB (aka: Clipping!!!)
1 - the input gains acessible via the menu- both stage as fine adjust - determine the level of the analog signal coming to the AD. This is 100% analog
2 - the output volume acessible via the menu does not affect the running pedlaboard and can't help in case it is clipping. For that use I always have a Gain Plugin in the last position to act as a "Pedalbaord Master Volume". This "Output Volume Control" is meant to adjust the amount of signal sent to the amp or mixing desk.
Hope this helps