You are absolutely right.
The Crown amp’s clipping light is based on how much voltage that amp can apply to ANY signal before THAT amp starts “clipping”.
If you are already sending a clipped signal to your Crown(i.e. running the DJ mixer in a clipped state), but you are running you Crown within its operating range, it will not show you a clip indication.
Though you WILL be sending a clipped signal to your speakers, and this WILL wear them out prematurely. To much clipping can result in speaker failure very quickly.
If you are only clipping the mixer mildly then the audible result will be minor, as the actual frequencies being removed are at the extreme top and bottom of the hearing spectrum.
As a rule of thumb, regardless of the LED placement on the mixer, I try not to let it peak above +3db at either stage, channel or main.
I have heard arguments for 6db that stand to reason, but I REALLY think it depends on the mixer. Its unfortunate that we don’t know the exact clipping point for a specific mixer, although every manufacturer documentation will tell you to avoid allowing the signal to hit the red as it will ‘risk’ clipping.
With that being said. This is clipping in a nutshell:
When a sine wave (audio signal) is clipped the very top of the wave, that should be a progressive curve, gets flattened, to reduce the highest points.
BUT at the point where this sine wave is flattened into a “square” wave, the actual electrical voltage that is telling the speaker it should be reaching the top of the waveform is still going through the voice coil, BUT the speaker doesn’t actually move that far, it only moves as far as the clipped signal allows.
Speaker voice coils are cooled by the air that the actual cone of the speaker pushes past it as it operates. SO, if the signal is clipped, you are running voltage through your speaker, and that speakers cone is NOT moving as far in and out as it should for that voltage, so the voice coils will begin to overheat, because their cooling ratio is very fragile.
So you might not hear it cutting out audible signal when your friend is clipping the mixer, but it is DEFINITELY putting a lot more wear on the speaker system being used, and if that is done every night, for a majority of the night, that speaker system will come apart way sooner than it should.
And if you didn’t know exactly what clipping your mixer was, you would just assume you had gotten bad speakers, or you would have a bad impression of the company you got your speakers from, for an unfounded reason.