HeadFi is updating its search index, so I can't quote my previous writing on this subject. I probably will write a more detail post on the All-to-DSD feature later on, but right now, let's go through this briefly.
The 1-Bit resistor network can only accept 1-bit bitstream as input, therefore we need to convert all non-1-bit audio signals into 1-bit before we can feed the source material from USB Audio to our 1-bit Resistor Network. This is where ALL-TO-DSD kicks in. In other words, if you are listening to anything that is NOT 1-bit, regardless of whether the material is stored in your local TF card or you are streaming via your subscribed service, it must be converted to DSD (i.e., 1-bit format), so DSD-64 is the default setting, and you can select DSD128 and DSD256 if your pairing is permitted. Fortunately, the conversion from PCM-to-DSD is a fairly simple and accurate algorithm, when compared to DSD-to-PCM conversion, and please don't judge PCM-to-DSD conversion based on your DSD-to-PCM experience, they are not the same algorithm in reverse.
Regarding DSD64 vs DSD128 vs DSD256, I won't assume the higher conversion is always the better. The upscaling involves an interpolation algorithm, which means they might enhance the sharpness and sense of resolution, but might compromise the naturalness of the playback. I personally prefer DSD64 with regular 44.1/48 material and DSD128 with 88.2/96 material, in other words, I am a believer of less is more when come to upscaling.
Besides draining more power, are these All-to-DSD setting providing audible differences? Yes but depends. If you are using the Dongle DAC on the go, traveling underground or by bus, or walking on a street, I don't think the difference really matters. If you are using it for critical listening with a decent resolving IEM, then you probably won't hear the difference immediately, but when you compare them after multiple ABABA , you are training your ear to look for the difference, and once you learn the tricks, the difference is fairly audible, and as I said, please don't assume DSD245 is always better then DSD64, not to every pair of ears, and not to every genre of music, IMHO.