Deafened creatures are unable to hear. This causes problems with spellcasting, and in D&D this would cause a chance of spell failure when casting a spell with a verbal component. In Neverwinter Nights however, the chance of failure (20%) applies only to arcane spells (excluding stilled spells, odd as that may seem) and does not depend on spell components. In addition, there are some special abilities (such as bard song) that require the ability to hear, and deafened creatures are excluded as targets.
Deafened creatures are able to make successful listen checks, despite the apparent contradiction.