If you've ever been underwater at a pool when someone jumped in near you, you know that the sound of the splash is clearly audible. But telling where the splash came from is another matter. Water does a much better job than air of conducting sound waves, but that extra conductivity makes it harder, not easier, to tell where a sound comes from.
Under The Water
Above the surface of the water, we can tell whether a sound comes from the left or right because it strikes one ear a little sooner and a little more loudly. The more distant ear gets a smaller dose of the sound a little bit later because it's farther away from the source and also because it's shielded by the head.
Even though we don't notice the difference consciously, it's enough for the brain to decide which direction the sound came from.
But sound travels five times faster in water than it does in air. Travelling that fast, the sound is detected by both ears at almost exactly the same moment. That's one reason that underwater a sound seems to come from all directions at once.
The other reason is that underwater sound waves pass directly into your head, bypassing your ears altogether. That's because body tissues contain such a large amount of water. Try plugging your ears underwater and listening for another splash of someone jumping in. It will be just as loud as the last splash when your ears were not plugged.
With sounds coming into every part of your head at almost exactly the same time, it's no wonder the brain has trouble deciding what direction the splash came from.