Bitstream? Or Jittery, Polluted, Kernel Stream?

Sorry for the technically ignorant question here, but while struggling to unravel the puzzle of simple, clean PC audio, I purchased a Hagerman technology interface box.

This connects to the USB out of my Windows laptop, and then offers me a SPDIF out so I connect to an Audio Research DAC 5.

It seems to work as described and everything sounds OK, but I was a little curious to discover that the volume control still worked on the Windows media player.

I thought I was just getting 1's and 0's into my Audio Research DAC? Can you adjust the volume on a bitstream?

Or is something else going on here?

Thank you,