I read some where that the curvature of the ear adds certain attributes to the incoming sound. I think the way it bounces off the earlobe changes certain key frequencies so the brain can tell elevation.

My teacher also said NASA was working on directional location using standard earphones. They plan to use this on the shuttle and in fighter jets. They can have more than six people talk and the listener can tell where each one should be.

I think my memory is accurate, but I may be wrong.!?