Let's see if I can sort this out:

Some devices (all DVD players, some CD players, mini-disc players) provide digital audio outputs in addition to the stereo analog outputs that are the "traditional" output. What this means is that the data being played is remaining in the digital format rather than being converted to analog. These digital outputs can be in a couple of different formats. One is optical (sometimes also called Toslink), which uses a fiber optic cable to transfer the digital signal. For that, you would use the Outlaw PDO. In many cases, the digital signal is not converted to optical but instead uses a "coaxial digital" output -- a single RCA jack and a 75-ohm rated cable that can handle the signal bandwidth. The 1050 has two optical digital inputs and one coaxial digital input -- the coax digital is next to the two optical digital inputs. For DVD players, this digital output is necessary to provide a Dolby Digital or DTS decoder with the original digital soundtrack so you can get the 5.1 surround data.

If you do not use one of these digital connections, then you are relying on the "old" analog approach -- your DVD or CD player reads the disc, takes the digital information, converts it to an analog signal (typically left and right analog channels, although some DVD players to include Dolby Digital decoders, so they output six analog signals), and spits it out through the analog RCA jacks. When connecting the left and right analog outputs of a DVD player to your receiver, you are getting only a piece of the 5.1 soundtrack included on most discs; the rest of the soundtrack is "lost" -- trapped in the player, essentially, by the conversion to analog stereo.

You can convert between coaxial and optical digital signals with inexpensive devices that are available online, but the only way to go from a digital signal to an analog is add a D/A or A/D converter in the signal path -- you are exactly right that no mere "adapter" will do the job.

If your CD player is a magazine-style Pioneer changer, then you probably do not have a digital output -- I used to have one, and it had analog outputs only. I don't think they ever made one with a digital output. I could be wrong, though, so it's worth looking at the back of the player the next time you're messing with the rack. If you only see the two RCA jacks and the little 1/8" remote control in/out jacks, then you don't have a digital output.

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