If you once listened to MPEG 1 Audio Layer 3 (aka mp3) compressed audio files you’ve already heard some encoding algorithms which are highly based on psychoacoustic principles. But what is that voodoo stuff all about in general? The science of psychoacoustics basically investigates the impact of a physical audio signals property on to the subjective perceived signal (hearing) and whats going on under the hood of that hearing, meanwhile. So it can basically be seen as an input/output model where a certain acoustic stimuli comes in and some sort of perception comes out. On top of that, hearing has not just been seen as a black box but a lot of modelling has already been done to get a better understanding on how hearing is actually performed in our bio-mechanical apparatus and our brain as well.
One rather basic and well-known insight coming from this terrain is that human hearing is far from behaving linear. As an example, if it comes down to our threshold of hearing then this is not linear by far but highly frequency dependent. One model which describes this are the Fletcher-Munson curves which are basically a set of equal loudness contours. Extending this concept, an equally measured physical sound pressure level might not appear to be equal to our perception: The subjective level impression (loudness) depends on frequency location, bandwidth and event duration as well.
In general there seems to be some significant limits in our hearing abilities and the aforementioned lossy audio encoders are taking advantage quite a lot of these effects such as frequency dependency or audio masking effects. And as a sidenote: If we are mixing audio we can utilize those principles too of course. On the other hand the hearing system is highly adaptive and can perform some amazing reconstruction tasks, e. g. reconstructing the phantom fundamentals out of some higher overtone series which is a principle coming from psychoacoustics too and some bass enhancers are already taking advantage of this.
As a bottom line, the field of psychoacoustics is a really fascinating one and there are a lot of different areas for already existing or potential applications ranging from audio encoding, improving sound perception (e.g. in noisy enviroments or transmitters) or even increasing loudness and bass perception in the audio production.