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We're talking about digital processing. madVR outputs video content with a black level value of 0 (or 16 when using TV levels). Whether or not the display has infinitely low black levels or not isn't something madVR has to worry about.
Basically what madVR does is modifying the "gamma curve" (in words that might make more sense to you), to account for the difference in peak luminance capabilities between the mastering display and your display.
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