What is bitstream?

In plain language

Two routes. Bitstream (also called passthrough): the source sends the compressed stream on and the AV receiver decodes it. PCM: the source decodes and sends uncompressed audio.

Sound quality is essentially identical for lossless formats, since both end up at the same samples. What differs is which device applies its own processing, and what the receiver's front panel displays.

Why it matters in your setup

For Atmos and DTS:X, bitstream is usually the right choice: the object metadata reaches the receiver intact, which it cannot do once the source has flattened it into channels.

For a source doing its own mixing — a games console, a PC with several audio streams — PCM is often more practical.

Either way the source only bitstreams a format it believes the downstream device can decode, and that belief comes from the EDID.

What the DR HDMI 8K does with it

The DR HDMI 8K does not decode or convert audio; it passes it through untouched, with no compression or down-conversion. What it controls is what the source is told, which is what decides whether the source bitstreams a format at all. Advertise TrueHD and it will bitstream TrueHD; remove it and the source quietly falls back.