The mod is not mine.
There is certainly some line-level audio equipment at the other end of the cable.
According to the article pointed by the above mentioned link,
"... Chris uses a USB DAC for audio through his speaker system...
... Both Chris and Mike rely on a special 3rd party ROM made specifically for Nexus 7 tablets and car installations. The ROM is called USB ROM and has important features like USB host mode charging, plug&play handler for DAC, Media buttons (volume, play/pause + next track) on nav-bar and much more..."
"USB ROM for Nexus 7
Supported USB audio devices
These are just some of the supported USB DAC's: CM106-F, FiiO E07 + E10 + E17, Hifimediy Sabre, VIA USB Audio Dongle, Behringer UFO202 + UCA202 + UCA222, Syba SD-CM-UAUD, Miditech Audioface2 (PCM 2902), FujitsuSiemens PortReplicator (CM 108), Aune T1 (TE7022), Turtle Beach Micro II, BERESFORD Caiman, Teralink x2, Headroom Total Bithead, Fostex PC-100USB.
Basically all standard USB audio devices should work.
Problems have been reported only with TAS1020B based DAC's."
http://mehrvarz.github.io/nexus-7-usbrom/