Jitter is essentially the inherent problem of a digital signal (bits of information) living in an analogue environment (time). Errors arise because the transport must read the information off the disk and convert it into a time encoded digital stream in realtime (hence the term "stream"). A computer copying a file will read over a sector of a disk as many times as necessary to get the information properly. An audio disk gets one pass. If it misses information or gets it wrong, it has to rely on imprecise algorithmic information further down on the disk to correct the information - this is known as Error Correction Codes (or ECC).
This task is difficult enough under ideal circumstances, but have you ever taken a good look at your CDs? While the information encoded on them may start out correct and pure, errors in the pressing process, degradation of the disk, material imperfections, scratches, warps and so forth make corrupt the data further or make it more difficult to get at. This is why things like Mobile Fidelity Labs gold disks sound better than a standard disk - better materials less prone to degradation. There are other factors that come into play such as the amount of vibrations caused by the motor spinning the disk, other equipment, or from music itself causing errors. Electrical interference from a cheap power source or interference from other equipment can cause read errors as well. Lastly, the quality of the electronics that generate and send the signal down the road to the DAC also play a part in the quality of the signal.
Again, the basic problem is that the CD is using a digital medium (bits of data) in an analogue application (streaming). This is one of the reasons there is so much excitement about file based audio (Sonos, Slim Devices, PC Audio, Mac Mini, etc). Pull the file off the disk in a digital application (file ripping) and get a digital source that can produce a more accurate stream from the beginning and you have won that part of the battle. Assuming your software is set up properly, the problem then is reduced to transport jitter to the DAC (which can still be considerable and problematic). For many people, they simply prefer to spend a good hunk of money on a really good CD player with quality components all around (transport, clock, DAC) - the shorter the signal path, the fewer components to go through, the less chance for error and corruption.
So yes, it is all 1's and 0's. But unlike applications for your computer which 'read until right,' a music transport gets one opportunity to get it right. Given the volume of data, that is a lot to ask of even the best components. The better your downstream equipment (good DAC, revealing speakers, etc) the more you will notice problems of the source.
Does that help?
