An alternative digital format (used by SACD) that encodes audio as a high-rate single-bit stream rather than multi-bit PCM.
DSD is the format behind the SACD disc. Instead of PCM's multi-bit samples, it uses a 1-bit signal running at a very high rate (2.8MHz for "DSD64" and up). Fans value its smooth, analogue-like character; critics point out that most DSD recordings are converted to PCM somewhere in the production chain anyway, and that many DACs convert DSD to PCM internally before conversion.
In practice DSD is a niche-but-cherished corner of the hobby. If you have an SACD collection or buy DSD downloads, you'll want a DAC that handles it natively; otherwise it needn't drive your buying decision.