Hey Demon Ramen!
As others have said, the CTH will use its internal DAC when the input button is extended. With the input button in the other position, it can accept analog audio from any other source.
The key takeaway is that the Tube Hybrid amplifier stage is always in effect if you have your headphones plugged in. Input button “extended,” the CTH is a DAC/ Amp. Button switched, the CTH is still an Amp.