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Digital audio refers to a digital representation of the audio waveform for processing, storage or transmission. CDs and DVDs are digital recordings, when analog sound waves are stored in digital form they will not degrade over time, When stored properly digital recordings can last (theoretically) forever with no sound loss at all, meaning that they will sound exactly the same as the day you bought them. A digital recording is created by cutting into the metallic surface with a laser. Under magnification, a CD or DVD looks like Morse code; it is those dots and dashes that the laser reads to create sound. The sound created is crisp, bright and loud, if the digital recording contains silence, there will be no noise. As you move up in format (CD to DVD to Blu-Ray audio) the quality and fidelity increases exponentially because of the type of medium and the type of laser that reads the disc.
In your home stereo the CD or DVD player takes this digital recording and converts it to an analog signal, which is fed to your amplifier. The amplifier then raises the voltage of the signal to a level powerful enough to drive your speaker to create a clear, crisp sound.