That's correct. The optical output has a digital copy of either the USB signal or the iDevice digital signal, depending on the input you choose. This allows you to use an external DAC and headphone amp.
Having said that, we believe that the built-in DAC and HP Amp are so good, that having tried the external ones, you will go back to using M8 for everything (iDevice transport, DAC, HP amp).
We gave you the output so you could try this out and compare. People requested an ability to A/B things with the M8 and we complied.
It's a tweak product, "everything for everyone" it seems, and that's why it took so long...
To me a big benefit of the optical out is for those who want to connect the iDevice to their "home receiver with speakers rig", or they want to use the iDevice in their high end headphone rig and they have an available digital input but no free analog inputs. I am one of those that would use it that way.