"Dolby Surround Sound" is a specific method of mixing together 4 channels of audio into two channels. The technique used is called "matrix encoding". Dolby's ProLogic II decoder is used by most home-entertainment systems to extract the center and surround audio channels. Sounds which are in-phase with one another in the two channels are sent to the center speaker. Sounds which are out-of-phase are sent simultaneously to both of the surround speakers. While matrix encoding can provide a reasonably good surround-sound environment, digital audio can provide much better separation between the audio channels.
"Surround sound" is used to indicate both matrixed audio and discrete audio. Inexpensive systems which use only a pair aof analog connections cannot provide multichannel discrete surround sound.
Optical and coax digital connections usually provide up to 6 completely separate audio channels: Left front, Center, Right front, Left surround, Right surround, and Low Frequency Effects (the .1 channel). Dolby's multichannel digital audio encoding is called "Dolby Digital". DD encoding is required on all DVD discs. A different encoding was developed by DTS (Digital Theater Sound) to compete against Dolby in providing multichannel digital audio. It's provided on many high-quality DVDs. (Whether or not DTS is better than DD is arguable.)
HDMI connections can provide up to 8 completely separate audio channels: Left front,, Center, Right front Left dside surround, Right side surround, Right rear surround, Left rear surround and Low Frequency Effects (the .1 channel). Dolby and DTS have both developed high-definition lossless digital audio encodings which are used on Blu-ray discs. The DD and DTS audio provided on DVDs is "lossy" and thus not quite as good.
Lots more details about Dolby and DTS audio are available on Wikipedia.
I hope this clarifies things a little.
Edited by Selden Ball - 12/4/12 at 12:44pm
