WHAT IS A DAC?

It's simply a component that takes digital music signals and converts them to analogue signals so that they can be amplified (by an amplifier) and played by headphones and speakers. Devices like your phones, notebooks, computers, TVs, all have them.

The question is capability and quality. DAC chips support various bit rates and sample rates, and the ones in Apple devices are limited to 24-bit/48kHz. To fully maximise Apple Music's lossless feature, you'll an external DAC that can support higher resolution music.