What is a DAC, and why do I need one?

Sorry, but I am a noobie, and don't know much about audio. Questions about DAC's-I see that most systems have a DAC, but I am not sure what it is or what it accomplishes. Is it necessary for sound quality if you are running a cheaper CD player (under $300) as your main source?
The Digital to Audio Converter (DAC) is the part of the circuit in a digital source (i.e. cd/multiplayer, etc) that converts the digital (binary) information stored on the disc into an analogue signal. In turn this signal is amplified by the downstream system, and converted into sound pressure by the speakers.

The other part of the "player" is the transport (think of your cdrom). Most mass market products and many "audiophile" ones have the two in one box (hence the terms 'integrated'). There are stand alone DACs available (hence the "digital out" you find on cd players) and, of course, transports.

Whether it's worth adding a stand alone dac to your present cd player -- it depends on the quality of yr player's transport. Both transport & dac contribute to the quality of the reproduction, so it's difficult to say outright not knowing which player you have.
As a general rule, most cd players regardless of price use transports from a small variety of producers: Philips, Sony, Teac. However the implementation of the transports within the final product varies.
As a general rule, most cost-cutting is to be found in the post transport part of the cd players. So, rule of the thumb is, you get *some* improvement with an outboard dac -- BUT this is a rule of the thumb ONLY. Cheers
you probably ment to say "digital to analog converter"

the DAC is the single most important piece of listening to digital music reproduction.
there is a lot of data in these CDs we listen to. A lot of great music and ambience...but you'll never hear it w/o *excellent* digital to analog conversion.

a good DAC squeezes the most out of your music and is well worth the price of admission.
Does you cd player have a digital out?If yes I would definetely get a used dac.Even Audio Alchemy for low$$$.
benchmark DAC-1
Grace (new) 902

hard to beat.