Yes the DAC is for high end headphones. It's essentially just a sound card with a built in amp. I assume like how the Astro headsets come with their own Amp. I don't use mine cause I rarely use headphones and I'd rather have the OCII tool using that USB Header.
The onboard sound is for your PC speakers and it supports 7.1 surround where as the DAC is stereo only (as far as I know). The onboard sound isn't powered so you need externally powered speakers in order for them to get decently loud. Not sure if having powered speakers plugged into the DAC can mess anything up but it doesn't seem like a good idea.
I'd just use the sound card on the motherboard itself unless you're listening on Headphones. Hope that helps.