SPDIF is a digital audio protocol developed by Sony and Philips.
In order to connect the signal to an anologue input, a digital to
analogue converter is required. If the source also has analogue
outputs, it is much easier to use them - the digital to analogue
converter is built into the source and saves the need for an
external one. It might be argued that a good quality external
converter can produce a better quality analogue signal than an
integrated converter in a DVD player for example. A listening test
will help to decide if that is the case.