A bit of research always pays off... I came across an explanation in the D8B DataBase which helped me out. I thought I might share it if anyone else is interested.
Inserting outboard with digital I/O allows you to avoid D/A and A/D conversions on your inserted tracks, and requires an appropriate digital card (OPT-8, DIO-8 or PDI-8) in the Alt slot. The routing is the same as with analog Alt/AIO-8 described above. This can be used with any device with digital I/O. Note the routing via Aux to digital Alt will truncate the output to 16 bits (see Aux send 16 bit bug). The Alt inputs can be Pre DSP inserted (channel patch) into any of channels 1-48 if further DSP (EQ, dynamics, plug ins) is required.
Thanks again for any help..
Knowledge is the beginning of Wisdom... Let the learning begin.