A digital to analog converter (DAC) works by receiving binary data from a computer, typically through software like LabVIEW, and converting it into an analog voltage output. The DAC card or module processes this data at each clock tick, generating corresponding analog signals, which can represent waveforms like sine waves. The terminal block facilitates easier connection and probing of these signals with an oscilloscope. Whether using an internal DAC card or an external module like the Lab-NB board, the fundamental operation remains the same, involving data transfer and configuration settings for output ranges. Understanding these components and their interactions is crucial for effective DAC implementation.