A DAC (digital-to-analog converter) is:
a) the part of the cd player that converts digital signals on the disc to analog signals that come out the rca plugs on the back
b) an essential audio part of any DVD player, surround processor or av receiver
c) a stand-alone box that has digital inputs and analog (and sometimes digital) outputs.
d) all of the above
D is the correct answer. A DAC is known in the modern computer audiophile world as "c" more often than not....in that it is now thought of as the stand alone box that contains a power supply, a DAC chipset, an analog stage, a set of output connectors (RCA and/or XLR) and a set of input connectors (some combination of coax, optical, USB, firewire, I2S, etc). But in reality "DAC' has been used as the description for just the chipset (inside cd players, DVD players, surround processors.....anything that needs to turn digital audio signals into analog). So, you see, your cd player is really two main things...a transport (the thing that spins) and a DAC (with its analog stage). So when stand alone DAC units became available people used their cd players as transports only and hooked a digital cable out of the cd player and into a (logically better sounding) DAC processor. The thinking is that each box can be upgraded or replaced, and can be designed to do very specific things, not unlike having a preamp, a tuner and an amp (rather than an all-in-one receiver)..
DAC chipsets are evolving constantly, so you'll hear people say "what DAC is in that player". They mean the chipset maker (i.e Wolfson, Burr Brown, Sabre, etc) and the model number (7162, ESS801, etc). Also, what sample rate does the DAC support? This tells us what types of files the DAC can convert (16/44 for cds, 24/48 for DVD soundtracks, 24/96 and higher for high resolution music, etc). But only final thing......being that a modern standalone DAC box is NOT just a chipset, but instead a regulated power supply, a well-tuned analog stage, a set of connectors, etc..it's not important to just know the specs of the chipset, it's important to know the build quality and musical nature of the whole box. I can make a cheap DAC chipset sound wayyyy more musical (using good analog parts after the conversion, and before the output connectors) than you can using a 24/96 chipset and a bunch of $.10 analog opamps. It's all about execution.
