They send the stereo, 16 bit, 44kHz digital signal to an external Digital to Analog converter, like your reciever if capable, for processing. You cannot send hi-rez (SACD or DVD-Audio) signals thru the coax/spdif output. This is also the only way to get Dolby Digital and DTS playback from DVD movies, as your reciever will do the decoding. Some CD's also contain a semi hi rez (DTS or Dolby Digital version of the SACD music) that can be played back in surround thru your Dolby Digital or DTS equipped reciever - kinda like SACD surround, but close for those that do not have an SACD/DVD-A player.