Dolby Digital is a proprietory digital audio
compression technique that is used throughout moviemaking, patented by
Dolby Laboratories. Almost all films released today utilise its technology. The
digital audio is held between the sprocket holes in the film, one of the places where damage and wear and tear is least likely to occur. Also, if the digital print is slightly damaged, simple stereo analog tracks are also held on the print, so that the sound does not skip. It loses quality, but that's a lot better than hearing silence.
Dolby Digital has become the main source of DVD audio soundtracks, due to its high compression and quality, allowing the MPEG2 video on the DVD to be of the highest bitrate and quality too, preserving the theatrical experience. Another advantage of Dolby Digital is its variety of sound polymorphism in that it can be encoded from mono, stereo, Dolby Surround all the way up to 5.1 channel sound. If the user does not have a 5.1 system and the software/player is playing a 5.1 track, the sound is downmixed to a format that the user can play. (Usually two track, matrixed surround)
Also known as AC-3 to many laserdisc fans.
Competitor digital audio formats include DTS Digital Surround, and Sony's SDDS surround format, offering higher bitrate audio.