DAC - Digital-to-analog converter
Optical I/O - is for transmission of digital signals
S/PDIF - Sony/Phillips Digital Interface - which is a digital signal protocol
By staying in the digital domain, it means that conversion isn't taking place, digital to analogue and then back again. This degrades the signal and is slower. Using spdif is a common industry protocol for companies to provide digital to digital file transfer.
Useful for plugging your video recorder into your pc for example.