What does a third-order intercept level of 40 dBm mean with respect to receiver performance?
Why The third-order intercept point is a theoretical, extrapolated figure of merit, not a level the receiver can actually reach. It is the input (or output) level where the extrapolated line of the third-order intermodulation products crosses the extrapolated line of the desired signal, so at that point the IMD product would be just as strong as each of the two tones that created it. A 40 dBm IP3 means that crossing happens at 40 dBm (10 watts), and the higher the number, the more resistant the front end is to IMD from strong nearby signals.
Watch out The idea that signals below 40 dBm produce no audible third-order products is wrong because IMD products exist at all levels, they just fall 3 dB for every 1 dB the inputs drop; the intercept is simply where the extrapolations meet, and in real hardware the receiver would be driven into compression or destroyed long before 40 dBm input.
Intercept = where the IMD line crosses the signal line. Imaginary point, bigger dBm is better.