Lost circulation is a situation when drilling fluid losses downhole because formation(s) is fractured. There are three levels of lost circulation which are seepage loss, partial loss and total loss.
Seepage loss is a situation when the mud volume loses into formation at very minimal and this will have no or little effect for a drilling operation.
Partial loss is a situation when some volume of drilling fluid loses into the well and you get some drilling mud volume back on surface. Not only do you lose the fluid volume, but you may have ballooning issue to deal. However, this type of fluid loss will not lead to well control situation because the total hydrostatic pressure does not decrease.
Total loss is the worst situation because there is no mud returning back to surface and the mud level will drop to any level down hole. Losing a lot of fluid into the well will directly affect hydrostatic pressure at the bottom. If you cannot keep the hole full, it might be a time when the hydrostatic pressure is less than the reservoir pressure. Eventually, a well control situation will be happened.
How Much Does Fluid Volume Drop Before The Well Kicks In?
This example will demonstrate you how to determine volume loss before the well kick in.
9-5/8” casing was set at 6,000MD/6,000’TVD (vertical well).
9-5/8” casing : N-80, 40 lb/ft, 8,835” ID
Leak off test at 9-5/8” casing shoe = 15.0 ppg equivalent mud weight
Current hole depth is 10,000’MD/10,000’TVD and current mud weight is 12.5 ppg
Expected formation pressure at 10,000’TVD is 12.0 ppg
Annular capacity = 0.0515 bbl/ft
Drillstring capacity = 0.0178 bbl/ft
Figure 1 - Well Schematic
The well has a total loss. Height of fluid which is equal to formation pressure can be described here.
Formation pressure = Hydrostatic pressure
12.0 x 0.052 x 10,000 = 12.5 x 0.052 x H
H = 9,600 ft
You need 9,600 ft TVD of 12.5 ppg mud in order to balance formation pressure. If you have less than this depth, the well is in underbalanced condition.
Figure 2 -Maximum Fluid Loss
It means that the fluid can drop 400 ft before the kick comes into the well. Then we calculate how much volume based on 400 ft height. For this case, measured depth is equal to true vertical depth because of a vertical well.
Total mud volume = mud in annulus + mud in drill string
Total mud volume = (Annular capacity x 400) + (Drillstring capacity x 400)
Total mud volume = (400 x 0.0515) + (400 x 0.0178) = 27.72 bbl.
For this scenario, the maximum volume lost down hole before the well control situation is occurred is 27.72 bbl. You can see that it will not take much mud loss before you will have the problem. In the real situation, you need to keep the well full all the time. If the mud is run out, you need to pump water to fill the hole. Allowing more fluid to drop will create you bigger problem because you will need to deal with several issues as well control, lost circulation, stuck pipe, etc.
Conclusion: Always Keep The Hole Full
Reference books: 
Well Control Books