Output level is one of the simplest fidelity metrics to understand, but don't take that to mean it's not important.  There are several occasions where you want to know the maximum, loudest value that a signal can get.  On the digital side, that's pretty easy.  A full-scale digital signal is a waveform (usually a sine wave) which oscillates back and forth between the maximum and minimum digital values.  An 8-bit full-scale signal, then, has samples that traverse the whole range between 0 and 256, and has a digital amplitude of 128.

However, on the analog side of things, it's not that easy.  The voltage at the speaker can go from the noise floor all the way up to the point where the speaker blows out.  But that's not really useful for measurements.  More useful is knowing exactly which analog level corresponds to digital full-scale.  Full-Scale Output Level (or just Output Level for short) on a PC is the amplitude of the analog signal that comes out of the jack/speakers when a digital full-scale waveform is applied to the codec. 

The main use of a device's output level is as a reference level.  Remember that when measuring a value in dB, you need to compare it against a reference.  For most analog measurements, the output level is a natural choice.  Dynamic Range and Distortion, for example, are measured in dB below output level.

You also need to know the output level of a device whenever you connect to other components.  Mismatching the output level of one device with the input tolerance of another can lead to audio too soft to hear, or even worse: blown components.  This is why many applications specify output level as a fidelity metric.  Most consumer electronics operate at 2Vrms (Volts root mean square).  Some professional gear goes all the way up to 10V.  PCs in the past have never had an output level specification, and range all over the scale, from 100mV to 2V.  As expected, this plays havoc with speaker gain and other devices trying to interoperate.  This changed with Vista.  To get a Vista logo, an audio device needs to output a minimum of 1.0V.  (Vista doesn't specify a maximum, but in practice, computer power supplies limit the level to below about 2V, which is only 6dB over the minimum)

Because of output level uncertainties, plugging a component into your PC is currently a trial-by-error experience.  You start with the component gain all the way down, and turn it up slowly until it's comfortable.  Fine when the gain is an analog knob, but in the age of all-digital controls, it can be frustruating.  Hopefully with better standards in the future, this won't be such an unpredictable experience.

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