USB DACs are Digital-to-Analog Converters that are specifically designed to work with your computer. The idea is to allow you to keep all your music stored on your PC, and then use the USB DAC to convert the music to analog for playback on your home music system.

The DACs in all computers and most receivers is sub-par compared to what you can get in a dedicated USB DAC. The difference in audio quality between using the DAC in your computer (via the headphone or analog outputs) or your receiver and what you get from a good USB DAC can be quite noticeable. Most often the audio will have a smoother, easier to listen to quality.

USB DACs range in price from a few hundred to a few thousand.

Notable USB DAC manufacturers are:

Benchmark
Simaudio
Wadia
Micromega
HeadRoom
Cary Audio
Ayre
Naim
Cambridge Audio
Audio Research

HomeTheaterReview.com's DAC reviews include:

Wadia 151 PowerDAC Amp/DAC
Micromega Airstream WM-10 wireless DAC
Benchmark DAC 1 HDR
Cary Audio Xciter DAC
Ayre QB-9 USB DAC
Cambridge Audio DacMagic DAC