The E7 is a combined DAC/amp.
The DAC (digital analogue converter) is needed to convert digital data to analogue sound (so you can hear it). Every MP3 player has one built in. Your sound card on your computer also has a DAC. The problem is that some DACs are quite low quality. The DAC on the E7 uses a Wolfson chip and is a good entry point for upgrading your sound. When using it as with your computer, you use the supplied USB cable to plug your E7 to the computer. You then plug either your headphones or your speakers into the line-out 3.5mm socket on the E7. This way it bypasses your computers soundcard, and automatically uses the E7 as an external soundcard. I use it on both my PC at home, and also my laptop when I'm traveling. For me the SQ is noticeably better.
As an amp - you can use the E7 together with your portable media player of choice. You can either plug the E7's line-in (with cable supplied) to your PMP's headphone out, then your headphones to the E7's line-out ....
OR if your PMP has a line-out and you get the correct cable, you can go E7 -> LOD -> PMP. The advantage of using a line out (rather than the headphone out), is that you also bypass your PMP's headphone out, and just extract the digital signal, and use the E7's DAC and amplification. The result can be a cleaner signal (better sound).
I use an iPod Touch G4 + L3 LOD + E7. I listen at home with either my SRH840's or AD700's, or portably with my SE420's. Although none of my H/P need amplification, the E7 has resulted in better clarity, instrument separation, and slightly better soundstage.
Hope this helps.