From MythTV Official Wiki
SPDIF (the Sony / Philips Digital Interface Format), also known as S/PDIF, is a high quality digital output system that can be found on most modern high-end sound chips and in many AC'97 motherboards. It comes in either a coaxial or optical outputs, and can be used to pass a digital signal to your SPDIF-enabled amplifier. A lot of users also use SPDIF to enable AC3 passthrough to their AC3 decoders. The advantage of SPDIF is that it allows you to bypass the sound card entirely and use your hideously expensive home theatre setup instead. However, you are usually unable to change the volume from within MythTV, and will have to use the volume control on your amplifier instead.