This was a fun problem to solve. I'll present the schematic, and inside of the schematic there will be some text which should explain how it works. Regarding the microphone, I'm no audiophile, all I know is that audio is based on frequencies, and without a DC point they will be crossing the zero voltage point, and that's the point I can focus on.

Link to simulation.
- Upper left graph : The 1 kHz source at upper left
- Bottom left graph : The 1 kHz source at bottom left
- Upper middle graph : Input of the upper NAND gate
- Bottom middle graph : Input of the bottom NAND gat
- Upper right graph : Output of the upper NAND gate
- Bottom right graph : Output of the bottom NAND gate
In the simulation, if you click the link above, then you can double click on the 1 khz sources and change the phase.
It says "Here for simulation" pointing to two RC filters, that is because there's some weird bug in the simulator, small spikes comes from the edge trigger when nothing is triggering, which can be seen in the middle graph's. If you were to make this schematic in the real world, then you would not add those two RC filters, the output of the edge trigger should go straight into the input of the NAND.
At the output of the upper right NAND there's a switch, it's there.. for the moment when the simulator crashes and the SR-state is undefined. So you should not add a switch there in real life.
The input of the edge trigger, you might want to use 10 nF instead of 100 nF.
This is how it looks like if the bottom 1 kHz source is phase shifted -45 degrees.

Notice how the two right graph's just swapped place.
You as a human will not be able to tell when they are blinking, your eyes will just see the average of the PWM signal, so you will clearly see that one LED lights up much more than the other one => know the direction.
In the simulation it's just 1 kHz sine waves, but the thing is that I'm only detecting zero crossings, so it doesn't matter if it's 10 khz or 20 kHz, the zero crossings still appear. And in the real world you'll never have pure sine waves, they will be added together. But yet again, the zero crossings will still occur at the same points.
And the reason for why I am focusing on phase shift is because the time delay between the microphones makes the sine wave keep rotating until it hits the other microphone, so the phase change is closely related to the time delay. But not equal to.
If you put microphones at your ears, then you will be able to tell if the source is coming from your right hemisphere or left hemisphere. You won't be able to distinguish if the sound is coming from front, above, back or below, so you could make two of these schematics, rotated 90 degrees. Equivalent to having one ear on the left side of your head and one on the right side => you can tell left hemisphere from right hemisphere. And then another microphone below your chin and one on top of your head => you can tell if the sound is coming from above or from below => you can pinpoint to where the sound is coming from and where the sound is going to.
I used the head example because that way you can visualize it as you are reading this answer. I am not recommending you to put microphones under your chin, that's just silly.
You could also just use 3 microphones and reuse one of the microphones. Connect them in a right triangle formation with the microphones at the corner of the triangle. The microphone at the 90 degree angle would be the one to reuse.

I'm no artist, but I believe it will behave like this.
So what happens in between when the source is much much to the side is dependent on the frequency of the incoming sound and the placement of the microphones.
Let's not forget about sounds bouncing off the walls and other noise sources..
But alright, let's assume you got the microphones like the upper middle of my doodle.
The sound source is 10 cm away vertically from the left microphone.
The sound source is 1 kHz
The right microphone is 1 cm away from the left microphone.
The hypotenuse of this right angle triangle is \$\sqrt{10^2+1^2}=\sqrt{101}\$ cm
What is the duty cycle of the left LED? (Like how bright will it be?)
Well the wavelength of a 1 kHz sine wave moving at speed of sound (343 m/s) is \$\lambda = \frac{v}{f} = \frac{343\text{ m/s}}{1000 \text{ Hz}} = 34.3 \text{ cm}\$
So the number of periods that will fit from the source to the microphone just below it will be \$\frac{10\text{ cm}}{34.3 \text{ cm}} \approx 0.291 \text{ periods} \$
And the number of periods that will fit in the \$\sqrt{101}\$ will be \$\frac{\sqrt{101}\text{ cm}}{34.3 \text{ cm}} \approx 0.293 \text{ periods} \$
The difference is a period of 0.02, this means that the left LED be on for 98% of the time, and the right LED will be on 2% of the time.
I'll tell you how it is for other frequencies to give you a feel for it, I won't show my math for it, it will be just like above.
- 1 kHz => Left LED = 98.5% on
- 5 kHz => Left LED = 92.7% on
- 10 kHz => Left LED = 85.4% on
- 20 kHz => Left LED = 70.9% on
The source hasn't moved, but the light of the LED indicates that it does. So it is... quite frequency dependent. And as you can see in this example, the source is only ~ 6 degrees off from the right microphone.
And as this source will move around, the phases will come back and overlap and... all weird things will happen... you'll get gibberish.
So... if you want to locate the source of the sound, then you kinda need to already know where it's already coming from and then point this roughly towards it, and then this device will help you with the last few degrees.
The closer the microphones are to each other, the fewer number of audible periods you can fit between them which in turn will reduce the gibberish.
If you manage to place the microphones the wave length of a 20 kHz (1.7 cm) away from each other, then you will be able to locate everything assuming you know the frequency of the incoming sound. You can find out what the incoming frequencies are with FFT.
Good luck on your venture.