When does someone need a DAC

Yes. A CD player player does have its own internal DAC. It has to, otherwise it wouldn't be able to play the CD. I think a good place to start would be listing what kind of equipment you currently have. If you already have a high end CD player, its very likely you won't need to do anything.

Well, for one thing, you can then use a computer as a "transport" and play digital files.

When it walks like a DAC and quacks like a DAC

Bobmclean, Good DAC when used with your existing CDP might give you better sound. On the other hand when you connect DAC to computer you will become independent of transport (hard disks are cheap) with ease of use, being able to find music quickly and create playlists. In addition you will be able to protect yourself from disasters, like theft or fire, by creating backup HD and storing it in safe place outside of your home (I keep mine at work). Also, you will be able to bypass limitation of CD (16bit 44.1kHz).