Yeah, it shows the actual playback volume and it only goes to 0dB so you can’t really tell if it’s clipped. If you generate a tone at nearly 0dB and play it at full volume the meter is going to max-out “in the red” but it’s not clipped.
It’s tricky to determine clipping. View → Show Clipping in Waveform will show red for potential clipping, and similarly, Analyze → Find Clipping will find potential clipping.
Both are simply checking the levels. They are NOT looking at the waveform shape. You can get false positives or false negatives.
Audacity uses floating-point internally, which essentially has no limits so if you amplify or boost the bass, etc., it can go over 0dB without clipping. But it will “show red” for any peaks that go over 0dB (false positive).
Some formats (including MP3)(1) can go over 0dB without clipping but your DAC is limited to 0dB and you’ll clip your DAC if you play it at “full digital volume”.
Or, if you have clipping and you lower the volume with Amplify so the peaks don’t hit or go over 0dB, it will no longer “show red” although, of course, the wave shape isn’t changed (false negative).
The only way you can be sure is to find the peaks and zoom-in horizontally to see waveform and then zoom-out vertically so you can clearly see the waveform shape/peaks. Even then it can be fuzzy because analog clipping isn’t always as cleanly squared-off as digital clipping.
There is a way to check the peaks - Run the Amplify effect and it will default to whatever up or down change needed for 0dB peaks. For example, if it defaults to +3dB your peaks are currently -3dB. Then you can cancel the effect if you just want to check. (The optional ACX Check plug-in will also give you the peak level.)
If I’m recording, I’ll usually check the peaks immediately after recording before any effects. If the peaks are 0dB I assume it’s clipped, and I’ll re-record if possible.
(1) As you may know, MP3 is loss compression. The wave shape changes and some peaks get higher and some lower. If you rip a CD to MP3 it’s not unusual for the peaks to be around +1dB, even though the original CD can’t go over 0dB.