Guitarfreak,
The truth of the matter is that a lot of the outboard gear you see is simply there to impress people. And a lot of it is there because it sounds particularly good -- or gives a sound that can't otherwise be duplicated or faithfully imitated digitally.
There is a portion of any studio's potential market out there that simply doesn't believe that a good recording can be made unless there are lots of cool-looking gizmos with knobs and multi-colored LED's. And unfortunately, it's that very portion that often has the most money to spend, and that's kinda' what they look for.
There is also the reality that a lot of the outboard gear out there just gives a particular sound that is extremely useful. As an example, I personally happen to love the sound of analog compressors. In my opinion, they just seem to breath a degree of life in to a lot of tracks -- and many will impart a certain sound that just can't be done the same way with a plugin.
As for how it's being used, some people will use the processor on the way in to their DAW setup. These folks are either very daring or just very confident in the sounds they're getting. Some will track bone dry, and then run the tracks back out to their outboard gear and back in again before mixdown. What I like to do is run a certain track; i.e. usually vocal or snare drum, out to some of my outboard comps where I'll do some very radical compression. I'll record that to it's own track, and mix it in with the dry track . . . blending the dry and affected track untill I like what I'm hearing. This is a pretty popular method.
Reverbs and other outboard effects are a different story. Most plugin reverbs either suck or are woefully inferior to outboard units. And the ones that don't suck usually take up so much CPU that it's difficult to run very many instances without grinding their computer to a halt. There are a few ways around this; The UAD and TC cards, for instance, but even then you're still locked in to only a handful of options as far as reverbs and effects go.
