Dolby Digital (code-named AC3) is a compressed, lossy surround sound format that boomed with the rise in popularity of DVD in the late 1990s and early 2000s. It is also the standard audio format for HDTV programming. With one digital cable from a DVD player and ultimately other sources like satellite and digital cable boxes, home theater enthusiasts could get discrete surround sound for six or more channels. This means that they could hear unique sounds coming from each of their rear speakers, which created much more detailed, cinema-like surround sound effects at home.
Dolby Digital was preceded by Dolby Pro Logic, a 4.0 format found on many VHS tapes.
With the advent of Blu-ray, Dolby released two new codecs for the new disc format. The first, and pseudo-successor of Dolby Digital, was Dolby Digital Plus. DDP is even more efficient than Dolby Digital, and is scalable down to very low bitrates (for mobile use) and up for near-lossless quality on Blu-ray. Netflix is also starting to use DDP for surround sound on their streaming content.
The second new codec is Dolby TrueHD, which is lossless and shares much of its technology with the MLP of the failed DVD-Audio format.
The main competitor for Dolby Digital is the DTS Surround Sound format.
All Blu-ray players can output Dolby Digital via their optical or coax digital outputs.