To understand what a digital-to-analog converter, or DAC, is, you have to first understand what digital and analog mean. Analog is a smooth, continuous signal like a sound wave. Tapes and record players stored data as an analog signal. The grooves on the record or magnetic signals on the tape would continuously increase and decrease to show the shape of the sound wave.
Digital is a more modern way of storing information. A digital system takes snapshots of a continuous process and gives each snapshot a numerical value. For example, a compact disc takes about 22,000 snapshots of an electric signal describing a sound wave every second and records the voltage of that signal. That is called the sampling rate. A digital-to-analog converter turns those snapshots back into a continuous sound wave.
The digital analog converter is controlled by a clock cycle--a computer timing circuit that controls its speed. The clock cycle depends on the sampling rate. For example, a CD player's DAC would have a clock that activated it 22,000 times every second. When it is activated, the DAC takes the next digital signal and creates an analog voltage that matches it. By doing this at just the right speed, the signal creates a continuous wave that looks like the original signal.
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Unfortunately, converting digital to analog this way does not create a true analog wave, but something called a stair step wave. Because there is a small jump between each digital reading, the analog wave jumps instead of making a smooth, continuous movement. To remedy this problem, most DACs use a technique called interpolation. They look at two adjacent points on the wave, and guess what values are in between. This greatly reduces the jumps, and makes for a better, less distorted sound.