Tim,
A transport basically reads the data off a CD. It then sends that data to a DAC which converts the digital data into an analog audio signal.
Every CDP consists of a transport and a DAC, whether it be one box or two (or sometimes even three!). The advantage of using a separate transport and DAC box comes primarily from being able to separate the power supplies for each unit/function...a transport has very different power needs than a DAC, so separating them makes each more efficient for their specific task. Also, some people claim that a digital signal is more susceptable to RF/EMI and other electrical noise, making it even more compelling to separate a power supply and circuitry away from the digital signal path as much as possible.
The downside of using separate transport and DAC is that the interface (SPDIF) is not very good, and the implementation of SPDIF in many commercial products is even worse...so you can get possibly poor performance from inadaquate SPDIF implementation...