Hiya,
CD players have generally two parts within them - the transport that reads the zeros and ones off of the disc, and the DAC (Digital to Analogue Convertor), which converts those zeros and ones into an analogue signal that your amplifier and speakers turn into music.
External DACs can be used to upgrade a player (as the external DAC may be better quality), where the internal DAC of the CD player is bypassed (using the digital out sockets), or can be used to increase the quality of other digital sources.
You can buy dedicated transpors, which do not have an internal DAC, and therefore have to be used with an external one. The idea here is that by removing the delicate analogue signals from the relatively noisy environment of the transport, sound quality is increased.
I have a Beresford, and have my Arcam Alpha 6 CD player, a Sky+ box, and a windows PC connected into it, and it greatly increases the quality of each.