DAC is an acronym for Digital to Analog Converter. It accepts a signal in the digital domain (like that from a PC playing digital files, CD player's digital output, music server, etc.) and converts it into an analog signal which can then be fed into a preamp or integrated amp of a stereo system. There are many methods of doing the actual digital to analog conversion... most use an IC chip DAC but there are also DACs built of discrete components. Playback devices for digital files commonly used to drive headphones (like what appears to be a DAP in your avatar) contain an internal DAC and amplifier circuitry to provide an amplified analog output for connected headphones.
Thanks for the response. I should’ve better described my question. I know what a DAC is. My question is why would a PC, CD player or anything else that has a headphone port need a stand alone DAC considering they already have one?
Just like anything else in audio there are many levels of performance available at a wide range of prices. Internal DACs in many common devices are very cheap implementations with similar quality power supplies and analog stages. So if such devices have a digital output you can in most cases get a significant gain in sonic performance by connecting to a higher quality and more thoroughly engineered external DAC.
Thanks. That explains it for me. I ordered a portable music player (Fiio m3k) a few days ago from amazon that is also an external DAC. I look forward to testing out the DAC function with my PC and other devices.