DACs - what exactly do these things do?

Howdy.

So I recently bought a Sony HAP-Z1ES so I could rip all my CDs in ALAC and keep them on the internal hard drive. I didn't want my iTunes on my PC to get bloated with 55mb songs when the vast majority of my listening is through my phone, car or work computer, etc - so uncompressed files don't make that much of a difference to me, except when listening on my home stereo. I rip them at full ALAC, move them over to the Sony, then delete in ITunes (after I make a mp3 copy that I leave no my computer so it can stream through iTunes Match, or whatever it's called)

So I see tons of "DAC"s out there, but they offer no internal storage.
What exactly is the purpose of these? 

To access full sized files off your computer and play through your stereo? If so, why not just use iTunes and store everything in ALAC?

Is it about the actual digital to audio conversion and they put out a higher quality audio signal?

Sorry, I am confused as to why someone would pay $2k-$5k for something that simply converted digital to audio, when just about every component out there and in most people's systems already do the same.

Please educate ?? I am sure some of my assumptions are incorrect...

Thanks to anyone who responds.