Digital volume controls are pretty much attenuators in the digital domain. As such, when you have them below fully on, they reduce the bit depth. An issue with that is that you lose resolution on the lower end of the audible range. The way that you get around it is with the addition of dither, which is decorrelated noise. It's a little involved to get into here, but the end result is that dither, while it is noise, like tape hiss in a way, actually improves the resolution of the sound when the bit depth is reduced. Bob Katz described how it works best in his book, Mastering Audio, The Art and Science. Fidelia has licensed an excellent dither algorithm so their digital volume knob is less destructive than iTunes or other playback devices. They also have an excellent sample rate converter.
How's that? :-)
