I agree that this is quite confusing...
...but that is the way it is supposed to be. The "design point" is probably buried in history, but before there were two radios and passengers that wanted to listen-in...it was a somewhat simple solution to provide the pilot with "side tone" so that he could hear his own voice as he talked on the radio. This side tone advancement helped the pilot confirm that he (she) was indeed transmitting. The radio controls provide the volume to the pilots head set.
When two or more radios were installed, and several different sources of audio (marker beacon, DF, etc) were common place, the "audio selector panel" allowed the pilot to select which audio source he wanted to listen to.
Now, independent of the audio selector panel, when several people were in the cockpit, and they wanted to talk to each other, they used the intercom. The intercom provided the audio communications path between crew members, and the volume and squelch controls were provided for this function.
Later, both intercom functions and audio panel functions were incorporated into one unit...today's audio panel. When shopping for an audio panel, you will find that some include the intercom, and some do not. Just be sure to pick the correct one that you want.
So, back to how to set the various volume controls in the aircraft:
1. start with your headset. If it has a volume control, set it in about the mid-point.
2. on the audio panel (or the stand alone intercom) talk into your mike and adjust the volume and squelch to your liking. If you have a co-pilot (or passenger) position, now is a good time to have them adjust their volume and squelch as well.
3. turn on and select each radio, marker beacon receiver, VOR, DF,...whatever, and adjust the volume of each unit separately. You need to actually be receiving a signal on each of these individual units.
That should do it.
