I remember a contemporary technology, Aureal's A3D, experiencing the magic of having one of their sound-cards and playing Counter Strike 1.x. Enemy footsteps felt almost as good as seeing them. Maybe it's nostalgia, but I never quite recaptured that sense with other hardware/games.
Another search-able term to drop in here is "Head-Related Transfer Functions" (HRTF), where the inputs are a sound and a given relative location, and the problem is how to subtly adjust that sound for each "ear", giving your brain the kinds of cues normally imparted by the shape of your ears and the different materials in your skull, etc.
Aureal suffered from a set of legal battles with a then-not-so-huge company named Creative, which eventually bought out the bankrupt remains.