Just to add more...
Your music is stored in a digital form (unless you have vinyl) usually the CD. The human ear, however, cannot make music out of these 1s and 0s but can make music when it hears an array of different frequencies of sound (analog)... so what the DAC does is convert those 1s and 0s into sound waves we can understand. The quality of the analog conversion is very very important as this consists a lot of your 'source'.
So, as dwb said, most (if not all) cdps have DACs built in, whether it be your portable one or some expensive one, however you can get external versions, which are usually better than internal, and offers you more flexibility over your source.
Maybe that was too basic/obvious?