Digital audio uses digital signals for sound reproduction. This includes analog-to-digital conversion, digital-to-analog conversion, storage, and transmission. In effect, the system commonly referred to as digital is in fact a discrete-time, discrete-level analog of a previous electrical analog. While modern systems can be quite subtle in their methods, the primary usefulness of a digital system is that, due to its discrete (in both time and amplitude) nature, signals can be corrected, once they are digital, without loss, and the digital signal can be reconstituted. The discreteness in both time and amplitude is key to this reconstitution, which is unavailable for a signal in which at least one of time or amplitude is continuous. While the hybrid systems (part discrete, part continuous) exist, they are no longer used for new modern systems.

Digital audio has emerged because of its usefulness in the recording, manipulation, mass-production, and distribution of sound. Modern distribution of music across the internet through on-line stores depends on digital recording and digital compression algorithms. Distribution of audio as data files rather than as physical objects has significantly reduced costs of distribution.

From the wax cylinder to the compact cassette, analogue audio music storage and reproduction have been based on the same principles upon which human hearing are based. In an analogue audio system, sounds begin as physical waveforms in the air, are transformed into an electrical representation of the waveform, via a transducer (for example, a microphone), and are stored or transmitted. To be re-created into sound, the process is reversed, through amplification and then conversion back into physical waveforms via a loudspeaker. Although its nature may change, its fundamental wave-like characteristics remain unchanged during its storage, transformation, duplication, and amplification. All analogue audio signals are susceptible to noise and distortion, due to the inherent noise present in electronic circuits. In other words, all distortion and noise in a digital signal are added at capture or processing, and no more is added in repeated copies, unless the entire signal is lost, while analog systems degrade at each step, with each copy, and in some media, with time, temperature, and magnetic or chemical issues.

The digital audio chain begins when an analogue audio signal is first sampled, and then (for PCM, the usual form of digital audio) converted into binary signals — ‘on/off' pulses — which are stored as binary electronic, magnetic, or optical signals, rather than as continuous time, continuous level electronic or electromechanical signals. This signal may then further encoded to combat any errors that might occur in the storage or transmission of the signal, however this encoding is for the purpose of error correction, and is not strictly part of the digital audio process. This "channel coding" is essential to the ability of broadcast or recorded digital system to avoid loss of bit accuracy. The discrete time and level of the binary signal allow a decoder to recreate the analogue signal upon replay. An example of a channel code is Eight to Fourteen Bit Modulation as used in the audio Compact Disc.