How does audio get digitized on your computer? Your computer has a soundcard - it could be a separate card, like a SoundBlaster, or it could be built-in to your computer. Either way, your soundcard comes with an Analog-to-Digital Converter (ADC) for recording, and a Digital-to-Analog Converter (DAC) for playing audio.
Your operating system (Windows, Mac OS X, Linux, etc.) talks to the sound card to actually handle the recording and playback, and Audacity talks to your operating system so that you can capture sounds to a file, edit them, and mix multiple tracks while playing.
Standard file formats for PCM audio There are two main types of audio files on a computer: PCM stands for Pulse Code Modulation. This is just a fancy name for the technique described above, where each number in the digital audio file represents exactly one sample in the waveform. Common examples of PCM files are WAV files, AIFF files, and Sound Designer II files. Audacity supports WAV, AIFF, and many other PCM files.
The other type is compressed files. Earlier formats used logarithmic encodings to squeeze more dynamic range out of fewer bits for each sample, like the u-law or a-law encoding in the Sun AU format. Modern compressed audio files use sophisticated psychoacoustics algorithms to represent the essential frequencies of the audio signal in far less space. Examples include MP3 (MPEG I, layer 3), Ogg Vorbis, and WMA (Windows Media Audio).
Audio formats can be imported from and exported to. Please remember that MP3 does not store uncompressed PCM audio data. When you create an MP3 file, you are deliberately losing some quality in order to use less disk space.