There are also systems that take over the whole audio front end. Music client systems like Sonos and Logitech's Squeezebox include the display and D/A conversion in a single box that becomes just another source for your preamplifier or amp, with all the file storage handled by a remote computer in another room. This computer becomes known as the 'music server'. More exotic versions of this arrangement exist specifically for audio (Qsonix, Meridian Sooloos) and for audio and video (Kaledescape).
The tracks on your CD are, in fact, individual data files, stored in a format called WAV in PC speak, or AIFF for Apple users (the difference between the two files is down to byte order, but although this might be of great importance to geeks, has no audible bearing to sound quality). These are uncompressed 16bit, 44.1kHz PCM files, exactly the same as those read by every CD player since the early 1980s. As each CD can store up to 650 megabytes of information, storing lots of CDs on a computer without any form of compression will soon eat through a lot of computer hard disk space. Data storage is cheap these days, but the amount of time it would take to archive and access all those gigabytes of information slows things down and kind of defeats the object of the exercise.
This is why compression is used. The word seems to automatically send shivers down the spine of an audiophile, but it need not be so scary in reality, because there's compression and then there's compression. The wholly benign form of compression is lossless. As the name suggests, the file is shrunk to take up less storage space but without any negative effects to the sound file itself. For the digital photographers out there, this is like taking a huge TIFF file and using ZIP compression to store and send it out. When the file is used, it's unpacked to its original size and no one's the wiser. Common lossless compression systems include ALAC (Apple Lossless Audio Codec), APE (Monkey's Audio own codec) and FLAC (Free Lossless Audio Codec) and typically shave the file size by anything between one third and one half.
The next stage is data compression, as opposed to file compression. This uses complex perceptual coding algorithms to determine not what data can be thrown away, but what musical instruments. As we fail to hear sounds that are masked by similar, louder sounds, so these quieter sounds can be removed to save space. There are many different types of this kind of 'lossy' compression (so called because once that data is lost, it cannot be retrieved) but the most well known is MP3. The result of all this space saving is that where FLAC can halve the size of a music file, a 128kbps MP3 file can shrink the file by as much as 11:1.
Different levels of compression can be applied to a piece of music, a trade-off between space saving and audio quality; a 320kbps (or kilobits per second) file is notionally indistinguishable from an uncompressed 16bit, 44.1kHz PCM track but results in a relatively large file, while a 96kbps file of the same piece of music will result in compression artifacts that undermine the performance on almost any kind of playback (these can manifest as swirling 'flanging' sounds). Somewhere between the two lies a comfort zone for most people, but for serious listening on large hi-fi systems, most audiophiles seem to prefer lossless files.
With different architectures and file types, this sounds complex and like the start of a format war, but the reality is completely different. Most of these systems are more similar than they are different, and they rely on the same basic protocols throughout. That means in most cases, if you buy one system and decide you want to change, your music comes with you without complaint or without bother on your behalf. In the case of the music player programs, they act independently to the music they play, because data is data. Some formats are proprietary (Apple's Lossless coding, for example) but transcoding to more universally used formats is possible and doesn't affect the music files. The days of the format war are hopefully over in computer audio.
There are decisions to be made over the choice of music player, but these are to do with picking out a system that suits your way of listening to music, not about influencing the sound. For many, music player means iTunes, Apple's almost ubiquitous media player software. It's the default choice of the Apple Mac user and the Apple iPod and iPhone user, which makes it incredibly popular. Other media players are available though, and some prefer the functionality or the simplicity of the alternatives.
For PC users, good choices include MediaMonkey, Foobar2000, WinAmp, and many more. Apple users get Songbird as an alternative to iTunes, with more to follow. Linux users get Rhythmbox and everyone can use VLC. Hardcore users also use a standalone 'ripper' software to transfer your music from CD with absolute clarity. Good rippers include Exact Audio Copy and dBpoweramp for PC, Asunder for Linux and Max for Mac, but unless you have a lot of very scratched discs, you'd struggle to hear the improvement. It's worth exploring the options here, but it's easy to get bogged down in minutiae, especially as each has its own set-up idiosyncrasies.