The network is used to push the audio from the PC to a receiver connected by Wi-Fi or a ethernet cable.
The receiver convert it to analogue and the analogue output is fed into the stereo.
In principle any format played on your PC can be transmitted to the receiver.
This concept is most of all known as Airport Express in the Apple world.
DLNA offers this option too (Play to:)
Measurements by Stereophile (2005)
Input: ethernet / wireless G
Format: supports every known audio file format, including MP3, WMA, and AAC - even DRM protected files are supported
5.1 channel Dolby Digital surround sound
Output: RCA / Toslink