Hi,
The loop has a negative feedback which ensures that output node (drain of pmos) follows the input value. However this only the case if it is "biased" properly. When we apply small-signal or sine wave of small amplitude we do not disturb the quiescent point of the system, where the gain was measured to be high. However when the input sine wave has higher amplitude, we start to move the quiescent point itself, like decreasing the Vds of pmos to bring it into "linear" region, which decreases the gain and attenuates the signal. The application (input/output common mode range) should make sure not to move the quiescent point of system, which could alter the characteristics and add non-linearity into system like variable gain. Hope this helped.