What is an optical digital cable?

Answer 1

It is a fiber optic cable carrying a digital audio signal. The common brand name of the cable is TOSLINK (the TOS being Toshiba who developed it).

The red light that you see is a red LED being pulsed on and off very quickly (usually 44,100 times a second). All digital information is transmitted this way. Digital only has two states: 0 or 1, on or off, hence light or no light.

This is the optical version of the coaxial digital output (an orange RCA jack). The format itself is known as S/PDIF (Sony/Philips Digital Interface Format). In most cases, there is no quality difference between optical and coaxial. The only difference is that light is not a physical connection with a wire. It is rare, but "ground loops" (hum) can occur on any wired system where the components are on different electrical systems. Optical is impervious to this anomaly.

There is also an older standard called ADAT which uses this same cable. The ADAT was an Alesis Digital Audio Tape(deck) which has 8 channels of digital audio and was popular in the late 80's. Although the decks haven't been made in many years, many other audio companies have adapted it as a standard for passing 8 channels of audio at once. This is pro use stuff (like in a recording studio).