First I’d like to say that for the most part Dolby Digital is the same thing as AC-3. It is an audio data compression scheme that allows you to multi-plex 6 channels of audio information into a single digital stream. This digital stream is then sent to your Dolby Digital (AC-3) decoder where it is decoded back into PCM audio and then output to your speakers. The main reason for AC3 is that it makes the file size much smaller than that of PCM. There is about a 11:1 file size reduction. Clearly this is a major advantage over PCM especially with DVD-Video. I’d like to also mention that DTS 5.1 encoding is made for CD. You can use a DTS encoder to encode your 5.1 mixes and put them onto a CD-r. There is quite a market for these 5.1 surround mixes. You may want to check out: DTS Online for whats available.
Via: Gaussian Blog