Well, I don't think there is an official term "HD sound", but it has come to mean the new soundtracks available on Blu-Ray (and previously HD-DVD) discs which are either uncompressed PCM, or are encoded in one of the new lossless compression formats like Dolby TrueHD and DTS HD Master Audio. Have a look through the forums for these terms and you'll find a wealth of information on them.
And no, optical isn't the best way of transmitting audio - it's not that it compromises the signal necessarily (though the cable plays a part in this), it's just it doesn't have the ability to transmit all the data contained in these soundtracks - there is just too much information and the optical cable doesn't have the bandwidth to do it. HDMI 1.3 is the new connection which can do this.