S/PDIF out is a connection you can use to run to a surround sound receiver. You use a TOSLINK cable for the connection:http://en.wikipedia.org/wiki/TOSLINK
You can buy one of these cables at any larger department store selling electronics. I like to buy any of my audio/video cables from this site:http://www.parts-express.com/
They have great quality cables at low prices. If you use this connection and a TOSLINK cable, you will need an external surround receiver and speakers plugged into the receiver. This is for first-class high-end audio setups on a PC.
Most people will only use the 3.5mm (color-coded) audio jacks for surround basic stereo sound functionality.
In most cases, you'll never use the S/PDIF in
on a PC unless you're recording audio from a surround sound source.