Zoot,
The DAC's USB is an input intended to receive a stream of data from the computer. You connect the computer to the DAC through that USB connector.
If the laptop has a large enough HDD you can store the music inside the laptop. Otherwise you need an external drive and the most widely spread type of connection between external HDD and computer is USB. But if your laptop happens to have another type of connector, such as firewire, eSATA, or Thunderbolt, you could buy an external HDD with that type of connection and be done. But again, using a USB HDD will work too; my point is another type of connection for the HDD will just sound better.
I hope this is clearer. If not, keep asking!
Cheers!