It's a combination of both. The relevant keywords are "Interaural Time Difference" (ITD; this phenomenon) and "Interaural Intensity (or Level) Difference" (IID

It's a combination of both. The relevant keywords are "Interaural Time Difference" (ITD; this phenomenon) and "Interaural Intensity (or Level) Difference" (IID/ILD; i.e., volume). In fact, there are a few other mechanisms too. The shape of the pinna (external ear) does some filtering that allows you to distinguish sounds that produce identical ITD/IID. The neuroscience of this is really fascinating, and the circuits have been worked out pretty well.