Multi channel outs are used for DVD-A and SACD playback. They can also be used if your dvd player has better DAC's than your receiver. The main draw back is that most receivers (but not all) by-pass all tone controls and bass management when multi-out is selected. I pretty much use digital for all but DVD-A and SACD.
A DAC is a digital to analog converter. All dvd players and receivers have them. When you select "multi-in" you are by-passing the DAC in the receiver and using the one in the dvd player. When using a digital connection you are using the receivers DAC. If you have a $1000 dvd hooked to a $200 receiver, chances are the DAC in the player is allot better. A $1000 avr and a $39 dvd would be the opposite. Most people match their equipment pretty closely so there most likely isn't much difference. Hook both up and toggle between the two to see if one sounds better than the other. I have a 1014 and a Yamaha 6770 dvd player and they both sound about the same. I just like the digital so I can use the 1014's EQ and other signal processors, like bass mngt, that are by-passed when "multi-in" is selected.
Unless you have a pretty high-end DVD player, you will most likely get better results from dvd movies by using the digital connection to let your receiver do the decoding and bass management. You might want to try both to see which you prefer.
PS you were close with DAC, it actually stands for Digital-to-Analog Converter.