DACs - what exactly do these things do?


So I recently bought a Sony HAP-Z1ES so I could rip all my CDs in ALAC and keep them on the internal hard drive. I didn't want my iTunes on my PC to get bloated with 55mb songs when the vast majority of my listening is through my phone, car or work computer, etc - so uncompressed files don't make that much of a difference to me, except when listening on my home stereo. I rip them at full ALAC, move them over to the Sony, then delete in ITunes (after I make a mp3 copy that I leave no my computer so it can stream through iTunes Match, or whatever it's called)

So I see tons of "DAC"s out there, but they offer no internal storage.
What exactly is the purpose of these? 

To access full sized files off your computer and play through your stereo? If so, why not just use iTunes and store everything in ALAC?

Is it about the actual digital to audio conversion and they put out a higher quality audio signal?

Sorry, I am confused as to why someone would pay $2k-$5k for something that simply converted digital to audio, when just about every component out there and in most people's systems already do the same.

Please educate ?? I am sure some of my assumptions are incorrect...

Thanks to anyone who responds.

external is supposedly better than internal ones included in most computers

you can spend up to $35,000 if you want
ALAC and FLAC ARE compressed file formats. They are not however lossy. Playback should be bit perfect to the original file.

MP3/Ogg/MQA however are lossy compression systems.
Your Sony HAP-Z1ES has as good a internal dac as any external dac I have heard up to 2 grand.  I had a Wyred4Sound dac2 dsd se which was 2500.00 and I like the sound of the Sony internal dac better.
As you go up the chain, you get more resolution and sound stage.
I, too, balked at the high price of some DAC's, but when listening, could hear the difference in presentation.
There are also added noise and distortion from PC's drives and USB, which would be another thread.
Suffice it to say, there is a reason 
' why someone would pay $2k-$5k for something that simply converted digital to audio, when just about every component out there and in most people's systems already do the same.'
Of course, the main dependent is whether or not it is worth it to you.
There are dacs that strive for neutrality and utmost transparency . They are staples in studios . There are hifi companies that make dacs and who knows what their goals are in designing them . Its all about manipulating  frequency response . What frequencies do you need be boosted to make a great sounding dac in your system . I think it is easiest to go for neutrality in a dac and add the frequencies you want to manipulate in other areas .
"Its all about manipulating frequency response"

I would have to disagree. Aside from NOS dacs, dacs generally measure ruler flat. 
yeah, maybe I am confusing "DAC"s, which I know are actually audio chips that convert digital to audio and "streaming players", and can be found in many different types of components - and a "streaming player"...like a Krell Vanguard, or any of the other units out there, that do not actually have any internal storage.

If you have a decent preamp with HDMI or optical/UBS inputs it will convert to analog. 

If my assumption is correct, what does a "streaming player" do that isn't already being done by a pre?

Sorry if I'm walking you guys around in circles on this..

(btw - very happy with the Sony HAP...running XLR directs into my Krell Foundation...listening to CDs in ALAC sounds just light-years ahead of the MP3s..(no-duh!))

Thanks for all the input so far and looking forward to more.