Audio Bitdepth
Overview
Sound is simply a wave, and digital audio is the digital representation of this wave. The digital representation is achieved by "sampling" the magnitude of an analog signal many times per second. This can be thought of conceptually as recording the "height" of the wave many times per second.
Audio Bitdepth is a measure of how precisely the height of the wave is measured.
Bits
There are several ways to describe the precision.
One common unit, and the unit used inside Media Center, is bits. This is where the name bitdepth comes from.
Bitdepth describes the number of 0's or 1's (computers are binary) used for each height measurement of the sound wave.
For example, and Audio CD is 16bit. This means each measurement of the sound wave will have one of 65536 (2^16) values.
Decibels (S/N ratio)
It's also possible to represent the bitdepth in decibels. Each bit is worth 6dB, so 16bit audio has a S/N ratio of 96dB.
Conversion
Converting from less bits to more bits is perfectly lossless. Conceptually, imagine adding bits like adding zeroes at the end of a decimal. For example, the number "10" might become "10.0" or "10.00" if you add more bits, but all three are perfectly identical.