From the ALSA wiki
S/PDIF (Sony/Philips Digital Interface) is a standard serial digital audio format. It is usually found on digital audio equipment such as a DAT (Digital Audio Tape) machine or audio processing device. It allows the transfer of audio from one piece of equipment to another without the conversion to and from an analog format, which could degrade the signal quality. The most common connector used with an S/PDIF interface is the RCA connector, the same one used for consumer audio products. An optical connector is also sometimes used.
Sometimes used to send encoded AC3 bitstream to external decoder.