A DAC is a mandatory piece of equipment in the audio signal chain if you’re using a PC or any other digital source. On a computer, audio files (mp3, AAC, FLAC, WAV, etc. etc.) are stored as digital data – basically a bunch of zeroes and ones that are used to numerically represent a sound wave. But numerical data is meaningless to a computer-less physical speaker. That’s where a DAC comes in – it converts the digital data to an analogue signal of actual electric power that’s analogous to the sound wave that the speaker ultimately produces when its components are moved.
Modern PCs come with a sound card that has a DAC built in, or in some cases it will have the DAC and other ancillary components built right into the motherboard, which is called integrated audio. So, from a standpoint of pure necessity an external DAC is redundant. So why do they exist then? And why do some people advocate for them?
Well, analogue audio signals, which are electrical, are vulnerable to external electrical interference. There’s obviously a bunch of other electricity running through a PC, so, in theory, if the DAC is near the rest of this electrical activity, then the output analog signal can be significantly compromised. An external DAC, in theory, solves this problem by doing the conversion to analog outside the PC case, far away from the rest of the electricity.
It sounds reasonable. Again, in theory. But in actuality, modern audio hardware is well built to prevent interference. It might have been a problem in the 90s but not anymore. Even integrated audio components are quite sufficient now – the days of sound cards being mandatory in PCs are over. Chances are, in fact, the components in your sound card and/or motherboard are as good or better than you’d get with a budget DAC.
If you cannot hear any distortion with your speakers and/or headphones, then an external DAC won’t actually do anything to improve the sound. That’s not to say that audible distortion can’t ever happen (which might not be coming from the DAC to begin with), or that an external/separate DAC is never worth getting, but rather: investing your money into better speakers or headphones instead is almost always a better choice. And speaking of which, you probably would need really high end gear to hear any electrical distortion from modern PC equipment in the first place.