Everyone and their mother says that a DAC makes a world of difference but I just can't tell the difference between them and the jack on the laptop.
That depends on a lot of factors, and by how much the improvements will be. Between two properly designed DACs with proper output stages, the differences are negligible if not placebo. It's only when, for example, you are comparing one improperly designed DAC (any part of it) vs a good one that you will be able to tell the difference, and sometimes there actually are people who end up heaping praise on the "bad" DAC with the sound deliberately colored by its output stage - because for example it has very strong bass, or very warm midrange, etc - and think of the properly designed DAC as boring.
In the case of the earphone output on laptops the real problem if at all is that the output jack produces a higher voltage output which already has an amplification chip on its signal path; assuming you can lower the digital volume on it so as not to overdrive the amp without dipping too far below 14bits (as the bits, not the compression bitrate, is affected by the OS volume control - it does not work the same way as a potentiometer on an amplifier), then presumably the DAC's very likely flat output won't distort with the amp.
Source: CD's riped to Wav lossless and Sony Music unlimited.
I definitely notice it louder but nothing else i have set both DACs to 24 bit 96000 hz studio quality and set the dacmagic to USB 2.0.
If the music you are listening to isn't 24bit/96khz or any resolution/sampling frequency higher than the PCM-standard 16-bit/44.1khz, or DVD Audio 24-bit/48khz, switching those output settings for the most part does absolutely nothing. In one DAC I had before the sound does seem cleaner, but it also sounds thinner. Think of the native signal as a lot closer to vinyl than tweaking it to a higher resolution, which makes it a lot closer to the stereotypical "digital" sound. In truth though digital actually has better dynamic range, but of course just tweaking the digital sound output doesn't really do anything save for giving you a headroom for using the digital volume control to control the output and keep you from going below 16bits (which is something that only a certain type of circuit would really use, which are DACs without normal output stages mated directly to an amp's driver stage without a potentiometer or volume control in the signal path).
Is there something I'm doing wrong or are my ears broken.
Well apart from what I've put down above it may be you, the listener, but I wouldn't say your ears are "broken" - only an ENT can make that assessment. The reality is that the music (or more precisely the recording quality) may be what is lacking, although with due consideration with that I put down above, don't expect a Telarc recording to sound absolutely phenomenal on the DAC and then absolutely crappy out of the laptop's jack - a good recording will sound good on any relatively flat system.
Also, do you play any instruments? It's not so much that your ears are broken, but more likely your mind (at least for now) is tone deaf. Take my friends for example - the guys I was in a band with and they are all very particular about their gear* but of course spending all that means they never really bothered with spending on their playback devices. I got into doing that first, and they can immediately tell the difference not just between headphones and speakers, but also if a particular amp seems inadequate or distorting if we increase the volume. Still, the very, very last thing they can tell the differences with are the DACs and carts, and even then it's usually along the lines of busting something that really doesn't sound good, like my Qualcomm Galaxy S3 vs their iPhones, not so much that they can hear one DAC having a bit too much bass with a tweaked output stage and the bass drum is already being staged too forward. The only time they really took notice of soundstage was when we got to try out Focal-JMLab's Stella Utopia at a local hi-fi show, and of course a room that size will absolute trump a headphone system - I can hear minute soundstage differences between DACs but among properly designed DACs even if there actually are any they're negligible. Look that up for scale - if the speakers put the drums four feet or so behind the vocals, even in a large room that would be noticeable; with headphones, any system combo that puts the drums an inch farther from the vocals isn't likely to be immediately noticeable, add to that how differently we wear headphones and that also affects soundstage, so the way they put them on might put the driver smack over their ear canals and hence changing upstream components won't help with the increased glare on the presentation. Then of course ones who were not in any band with anybody, like my bandmates' girlfriends/wives of course can tell how great Grados sound vs their iPod earbuds, but everything else compared to each other sounds the same to them - and that's already the headphones and speakers.
Note though that aside from instances where people heap praises on a colored DAC, there are also those who are hearing things. It's really tough to wade through all those minute differences that only get smaller thanks to the smaller soundstage on headphones. Personally, right now the best DAC for me is the PCM2702-based (other DACs use that DAC chip as a USB receiver chip) USB input on my amplifier - I've put it up against pricier CDPs and a lot of them failed, including one that was more expensive than the one I liked, but is other wise popular in speaker audio forums for some reason. Maybe they just like a CDP that deliberately makes Norah Jones sound like she has a cold, or they get speakers that make her sound like she ingested helium and they counteract that by giving her a virus.
*our guitarists only use Ibanez guitars with specific pick-ups, the lead guitarist though uses Fender with custom pick-ups for anything that won't go through his pedals while the bassist has his own Fender bass guitar; our drummer prefers his own brand of drums and parts, even stuffing for the bass drum, and of course Zildjian cymbals; I prefer grand pianos (which we've never had the budget for using on stage on a metal performance) and Shure's SM57 and SM58 microphones on stage, and if we got far enough, an AKG condenser mic for the studio
