Hi,
The difference between DAC and PWM is that PWM is not going to get you high resolutions at high frequency.
For example if you wanted to output 16bit audio on an Arduino UNO running at 16Mhz, in theory you could use the 16 bit timer1.
In practice your output quality would be terrible because the UNO can only count to 65535 244 times a second where as you would want to run your audio interrupts at typical rates of 8,000 or 16,000 samples per second.
A DAC does not have this counting limitation.
Duane B
rcarduino.blogspot.com