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DAC stands for Digital-to-Analog Converter, and is used for outputting analog signals from a digital input, typically a microcontroller.

A DAC converts a given digital signal to an analog waveform. It takes either a parallel or serial digital input and outputs an analog value, making it a 'bridge' between analog and digital devices.

DACs come in a variety of forms, ranging from simple designs to complex integrated DACs for RF and audio. The simplest DAC is simply just a very long(65,536 for Ti's DAC8564) voltage divider, of which a serial input selects which voltage 'tap' is used as the output.

R-2R DACs are more common than resistor-string DACs due to a decreased part count for a given parallel input. A R-2R DAC consists of several resistors, of which some have doubled values(hence 2R) in a 'T' network, with the resulting output fed to an op-amp to produce the analog output.

MDACs(Multiplying Digital-to-Analog Converter) do not need an external voltage reference to operate, unlike resistor-string and R-2R DACs. It also outputs current rather than voltage, however the R-2R DAC can also be designed to output current. MDACs, unlike the previous examples, obtain their analog output from multiplying both the digital and analog reference voltage \$Vref\$.

For further reading, look at Chapter 13 of the Art of Electronics(3rd ed.), or look at the Wikipedia article on DACs.