Digital Input Questions

ok, so a couple questions that might seem strange, but..

once digital signal shows up on a digital input, what happens? What I mean is, I'm assuming the driver goes into a fetch loop and it just writes that info to disk. Is there room here for errors or quality degradation? What sort of software is there out there do this "recording", any recommendations? Finally, is there some sort of standalone unit that can do this and say dump the data to a CF card or something? I'm mildly curious also how this is done with DSD as well.