Dolphins hear when the sounds in the water bounce off the dolphin's jaw bone into the middle ear. Dolphins can hear far better than humans and their hearing is even better than that of dogs.
The process of hearing in this way is called echolocation. Dolphins send sound waves through the water using their foreheads. When the sounds bounce off objects, they create echos that get sent back to the dolphins. They feel the echos bouncing off their jaws and every creature gives off a different type of echo. These echos help a dolphin determine what kind of object is around and the dolphin can determine how far away an abject is by the strength of the echo.
Dolphins don't have a sense of smell, so they have to rely on hearing and sight to help them avoid predators and find food. They also have to be able to hear the communication of other dolphins in the water.
Dolphins produce a variety of different sounds as a form of communication. They use moans, clicks, whistles, and squeaks to communicate. They can hear sounds of up to 150 kHz while humans can hear sounds up to 20 kHz so despite the fact that they don't hear in the same way as humans, their hearing is far superior.