Let's say you wanted to have your 2-channel system in the same room with your home theater. You could use the DAC1 for the 2 channel pre-amp, and have it feed a headphone amp a 2-channel speaker amp.
But what if you wanted the 5.1 channel theater system to also use/share the same front 2 speakers and that the 2 channel system controls? Well, you put the DAC1 in-between the home theater audio video receiver's preamp and the front 2 channel amp - feeding the home theater pre-amp's signal into the DAC1 analog input.
Since this means you are going from a "pre-amp > pre-amp (DAC1) > "power amp" there is one too many preamps. You can use the HT setting to allow the DAC1 to do nothing with the signal other than to pass it right through to the amp, with no changes or signal control. Now, the home theater has total control over the front 2 channel, along with the center, surround and subwoofer.
When you are done with the movie, and want to go back to listening to your 2 channel speakers or headphones, you turn off HT mode, and select a different input on the DAC1.