What's happening? I'll let Joe Hanson explain:
Nerve signals, whether they lead to squid chromatophore stimulation or muscle contraction, are essentially electric signals. Not in the sense that there are electrons flowing through your nerves like the wires in your house, but rather because of some very nifty ion gradients and voltages across cell membranes.
When an audio signal is converted to an electric signal, basically what happens inside a microphone, that electric voltage can be applied to tissues! The resulting voltage changes can trigger electrochemical signals, just like the chromatophores you see above.