Hmm - the most basic questions are often the hardest to answer.
I think we better start with a few common and basic terms:
1) Media - the media is where the content you will ultimately listen to with your ears (music, speech, etc) is stored. In general, there are two types of media.
a) Analog - this is the old, pre-computer, pre-CD, pre-ipod standard. A cassette tape, vinyl album and FM receiver are all examples of analog media. Audio (sound) is analog - the sound waves that hit your ear drums are analog.
b) Digital - audio can be encoded into a digital stream of 1s & 0s that can be then be stored as data on a CD or as an MP3 file. The encoded bits must ultimately be decoded back into analog sound waves before they reach your ear drum.
2) Source - the source is the device that first reads your Media and starts the chain that ends at your ears. Since media can be either analog or digital, so the source can also be analog or digital. But, it's actually even more complicated than that. A source holding digital media might output EITHER an analog signal or a digital signal. An ipod contains digital media and outputs an analog signal out the headphone port. A blu-ray player reads digital media (a blu-ray disk) and can either output a digital signal out the HDMI port or an analog signal out the Right & Left audio RCA jacks. A PC can also be either a digital or analog source. The headphone port on the PC outputs an analog signal. A digital signal can also be output a USB port.
3) Digital to Analog Converter (DAC) - this is the device that decodes the digital media into an analog signal. Many digital source devices contain a DAC. The iPhone, Blu-Ray player and PC sound card all contain a DAC. There are also external DACs. The idea here is that the DAC built-in to the Source might not be the best quality - so, if your source can output a digital signal, then you can feed that into a higher quality external DAC. The external DAC will then do the decoding and output a "cleaner" analog, line-level signal.
Everything after the DAC is an analog device. The DAC outputs a line-level signal, which just means that the signal does not have enough voltage to drive a full-size speaker. "Line-level" is a signal that follows a standard set of specs in the audio world and allows different brands of analog devices to be hooked together. This includes the preamp, which takes a line-level signal and outputs a line-level signal. The preamp's job is provide controls on the analog signals - volume, tone, switching between sources, etc. An amplifier takes a line-level signal and increases it (adds "gain") to provide enough voltage and amperage to actually drive speakers or headphones. Speakers need much higher voltage levels than headphones, so the amplifiers need much more gain.
The various pieces can be combined into one box, or separated into multiple boxes. For example, a compact home theater receiver might have a built-in blu-ray player, built-in DAC, built-in preamp and built-in amp - all in one device. Or, each of those might be completely separate devices that are different brands. The iphone has storage to hold the digital media, a DAC, a volume control and a headphone amp.
I can't believe I typed all that out... Edited by billybob_jcv - 11/11/13 at 10:27pm