How digital audio works?

Firstly, a song file like MP3, WAV, FLAC, etc. is the main source of sound quality. Those formats are still in digital form. They're categorized into 2, Lossless and Lossy. Lossless means pure sound quality or near the original record of a song/music. Example of lossless formats are WAV, FLAC, AIFF, APE, TTA, etc. Lossy means the recording isn't as same as original recording. Not edited but means not as good as the original. Then lossy formats are MP3, AAC, ALAC, etc. For analogy, lossless and lossy is like between healthy cow and unhealty cow.
The place where the song file remains is called Transport. From Transport, the song file is converted from digital to analog via DAC (Digital to Analog Converter). Human only understands analog, of course we can't feel or receive a digital thing literally. The DAC is the second part which affects sound quality. In this section, DAC is like the processing of the meat, whether a good processing or not.

Of course something raw usually tastes plain, so after the sound is converted to analog, the analog signal comes to Amplifier. Amplifier gives the characteristic of sound. Just like a chef, it's about how the chef cook it. Then from an amplifier, the signal comes to speaker or headphone which we use to hear. The headphone/speaker has characteristic too, it's how the sound is represented. Just like how the food is served. There's no way of serving a steak chopped. Of course serving something can be detailed or not.

Nowadays people can listen music from computer, phones, and many more. Those stuffs of course have built in DAC and Amplifier. Also the transport is the problem of supporting song file formats. Having a 30$ MP3 player doesn't support lossless formats. A 100$ digital audio player would have supported lossless formats.