It toggles the output/input of Project-H.
State Switch: One Switch on the front. Flip the Switch up and State X, flip it down and State Y
State Y: Default State. In this state, both the amp and the DAC are being used as one. So basically like a combo unit. You leave your headphone plugged into the headphone jack on the unit. What is happening inside is that all signals the unit is receiving from the computer is being sent from the DAC directly to the internal O2 amp and out headphone out.
State X: Say you just got a new amplifier and or DAC to try out. Lets say just an amplifier in this case. You flip the switch up to change to state X. What happens now is that both units are not working together anymore. The DAC will take signals from USB or Coaxil but instead of sending them to the O2 through the control board, it will directly output the signal to its RCA fixed line out port. The O2 also will now ONLY take a input signal from the backs RCA port. It will no longer receive a signal from the DAC and will only receive an analog signal from the back's RCA and output through the units front headphone out. This allows you to use a separate DAC with the O2 and a separate amp with the CS4398.