What I am talking about is how errors in DACs (yes, they do not perfectly translate digital codes into signals) effectively lower the number of bits. For instance, there is a DAC's resolution and then there is error which lowers the effective number of bits. Let's take the example of a hypothetical 14-bit DAC with +/-16 LSB INL error with output from from -8.192 volts and 8.191 volts.
This 14-bit DAC has 16384 discrete values from -8192 to 8191. When the code is 0, we get 0V output. When the code is 8191 we get 8.191V output. You get the idea.
Now because the error spec is 16 least significant bits either way, the output of the DAC may be off by that much for any given code. For example if the code is 0, where we should get an output of 0V, we could end up with an output as far off as 0.016V or -0.016V, or anywhere in between. For code 4000 where we should get 4.0V output, we could get 4.012V, or 3.997V, 3.984V, etc. Heck, the next code 4.001 could even result in a smaller output value than the one before. This would be considering something that isn't monotonic. Motonicity = when stuff is supposed to get louder, it gets louder, not softer.
In essence, we still have 14-bit resolution, but the accuracy is not guaranteed. Because the accuracy is not guaranteed, any time we want an output, the value is going to be off, in this case as much as 0.016V either +/- way which means 0.032V which translates to 32LSB. Since 2^5 = 32. 5 bits. What we have is 14 bit DAC with an effective number of 9 bits.
Why is this spec important? Because if the guidance computer of a AMRAAM tells the motor of a control surface to rotate 1.232% degrees, it better not be 1.217 degrees. Engineers need to know what the effective number of bits is, or what bits they can count on so they can properly design a weapons system according to specifications. Now does this translate into audio? Mike and Jason seem to believe so. I wasn't sure about a year before, but now I am fairly convinced, especially after hearing craptastic DACs with known bad specs, mediocre R2R DACs with dubious specs, and the Yggdrasil with known unbelievably great specs.