The hearing system is bizarrely complex when compared to a microphone. When we learnt about it as induction for our audio tech course I couldn't help wondering why it was like it is, the only advantage held over a microphone is better response to very quiet sounds.
Anyhow, the post above is correct, the hair cells are like a field of grasses and as the pressure wave passes over them, conveyed by a fluid in the cochlea, it can be strong enough to bend/snap them. My assumption is that once a hair is broken, it continuously sends out a signal telling you that you are hearing the correspondent frequency, and that this is tinnitus. A brief ringing (subsiding after a few hours/days) is presumably a bent hair, which slowly re-forms.
A loud sound at a certain frequency can damage your hearing at this frequency. The ear is sensitive at around 4kHz due to the shape of the ear canal and damage can more readily occur at this frequency. High frequencies are also easily lost; presumably the hairs for those are finer. Hence, distortion in a speaker system is likely to cause hearing damage much faster than clean output, as distortion is the addition of harmonic content. If you go to clubs/venues, go to those with professionally managed sound systems at least!
Hearing protection is advised for any exposure over 85dB, though as you get louder, you can withstand shorter and shorter periods without damage. Once you get to 110dB, you are dealing in seconds before damage can be caused.
Take care of your ears!