Essentially, the BeoLab 5 is an entire hifi system contained within itself, with the exception of the bit which gets the 1s and 0s off the CD and into a wire.
I'll outline what happens when you connect the speakers via PowerLink, and then Digital.
With PowerLink:
CD data > DAC in BeoSound > Tone Controls in BeoSound > Volume Control in BeoSound > ADC converter in BeoLab 5 > DSP circuitry in BeoLab 5 > DAC converter in BeoLab 5 > Volume Control in BeoLab 5 > Amplifiers.
Here, the signal is being converted from digital into analogue, back into digital and then back into analogue at the end. While this may seem like a bad thing, the converters in the BeoLab 5 are of such high quality, that you don't really need to worry about the re-conversion within the BeoLab 5. The big advantage of the BeoLab 5 when using digital connections is that you take the information directly off the CD, and the BeoLab 5 handles all the sound processing.
CD data > DSP circuitry in BeoLab 5 > DAC converter in BeoLab 5 > Volume Control in BeoLab 5 > Amplifiers.
There is only one conversion from digital to analogue here (that's 1 conversion step as opposed to the 3 above) and you also bypass the volume control, tone controls and any other sound-effecting circuitry in the source.
The end result is a cleaner, more transparent (detailed) sound. You may consider it to be largely pointless, but when spending ~£12,000 on a pair of speakers, you would want to get the best sound out of them possible.