Using the Direct mode you bypass the DACs of the Outlaw receiver and use the DACs in your DVD player. The DACS in the DVD player may not be as good as the DACs in the receiver (I find the Outlaws AKM DACs quite good, better than most). As for the volume output yes there is about about a 4 notch decrease in volume in Direct mode (ie: 46 on the dial in regular needs to be elevated to 50 in Direct to get the same db level).
Hope that helps.