I am really confused by this discussion so I went to my trusty Wikipedia to look up DAC. There is a good article but it disagrees with what is being put out here. The number of bits is an OUTPUT signal and the more bits the better resolution and less need for interpolation between pulses. This means that the higher numbers of bits the closer the DAC can come to a true analog output. The input to a DAC is how fast it can read the digital material (sampling Frequency) and still be accurate on its output. This is expressed in terms of frequency such as 192 kHz. Audio must be sampled at a rate at least twice the expected spectrum. This is why even the low end DACs have a sampling rate of at least 44.1 kHZ because the audio spectrum for humans goes to just a bit more than 20 kHz. Do I have a misuderstanding of the process somewhere?

The following definitions came straight out of the article:

Resolution: This is the number of possible output levels the DAC is designed to reproduce. This is usually stated as the number of bits it uses, which is the base two logarithm of the number of levels. For instance a 1 bit DAC is designed to reproduce 2 (21) levels while an 8 bit DAC is designed for 256 (28) levels. Resolution is related to the effective number of bits (ENOB) which is a measurement of the actual resolution attained by the DAC.

Maximum sampling frequency: This is a measurement of the maximum speed at which the DACs circuitry can operate and still produce the correct output. As stated in the Nyquist–Shannon sampling theorem, a signal must be sampled at over twice the frequency of the desired signal. For instance, to reproduce signals in all the audible spectrum, which includes frequencies of up to 20 kHz, it is necessary to use DACs that operate at over 40 kHz. The CD standard samples audio at 44.1 kHz, thus DACs of this frequency are often used. A common frequency in cheap computer sound cards is 48 kHz—many work at only this frequency, offering the use of other sample rates only through (often poor) internal resampling.

Monotonicity: This refers to the ability of a DAC's analog output to move only in the direction that the digital input moves (i.e., if the input increases, the output doesn't dip before asserting the correct output.) This characteristic is very important for DACs used as a low frequency signal source or as a digitally programmable trim element.
THD+N: This is a measurement of the distortion and noise introduced to the signal by the DAC. It is expressed as a percentage of the total power of unwanted harmonic distortion and noise that accompany the desired signal. This is a very important DAC characteristic for dynamic and small signal DAC applications.

Dynamic range: This is a measurement of the difference between the largest and smallest signals the DAC can reproduce expressed in decibels. This is usually related to DAC resolution and noise floor.