More commonly known as Dolby Pro-Logic
You get a center, front left & right, and a rear channel decoded from the normal stereo channels. (the 1 rear channel is fed to both rear speakers)
Dolby 5.1 is indeed digital, from a DVD & Sky+ for example.
You get 5 independant channels:
Front left & right, center, rear left & right
and a seperate channel for the subwoofer (the .1)