I think there are two takes on this:
orchestration - arranging a composition written for an ensmble (but more usually a solo instrument or in particell) for anything that can pass as an orchestra from the kind you would find in a provincial theatre to something huge such as Mahler would use.
arrangement - reworking a composition for solo/ensemble/orchestra to another.
The aim is to adapt the idiom of the original to the new instrument/ensemble.
The arranger/orchestrator goes as far as needed (eg to fulfil a commission) which doesn't mean the arrangement will be effective. I learn that someone has orchestrated Debussy's Preludes. I cannot believe they would be effective, just because the originals depend SO much on the colours and timbres of the piano. They could perhaps be regarded as different works but they wouldn't be Debussy's Preludes to me.
Orchestrating a piano piece can be tricky. Deep chords that sound fine on a piano would sound horribly thick literally transcribed for divisi cellos and basses. The sustaining pedal has to be taken in account in the arrangement/orchestration and, as you observe, the dynamics of a piano note/chord have to be taken in account.
A super piece of arranging I recently heard is Elgar Howarth's version of Mussorgsky's Pictures for a brass ensemble, played by the Wallace Collection. I believe it's available as an MP3 but the CD is out of print.
It works the other way round. Liszt arranged the Beethoven Symphonies and much Wagner for piano (the aim was to bring these works into musical households. Stravinsky wrote a version of the Sacre du Printemps for two pianos, for use in rehearsals.
So, really, it's what you dare. There's no hard and fast rule. Some arrangers are sensitive to that preservation of the idiom, others are not. Some specialise in different genres: jazz, classic, light music. Some have to get on with it, like it or not if it's a commission.
And the only way, really, to work out how it's done is to study an arrangement against an original. Unfortunately few orchestrations from piano scores are out there. Some, though. In the main, it's score study - that's a subject by itself!
But no boundaries or demarcations. There are some challenges that no one in their right mind would take: Beethoven's Moonlight; Ravel's Gaspard de la Nuit!