S/PDIF is a digital audio format that is becoming more common. You'll find digital audio connections on most modern amplifiers as either coax connections or fiber optic toslink ports. Some video game sound chips output digital audio and then use a separate digital to analog converter to produce the final analog output. By picking off the audio in digital form you can pass it to your amplifier with no noise and no signal degredation.

The Saturn uses separate D/A converter so a digital audio output is possible. The model one I have has a TDA1386T D/A converter, while the model 2 has a PCM1710. Looking at the datasheets, I worked out where to get the necessary signals for a Cirrus CS8406 transmitter IC. Credit goes to the author of the SNES spdif mod for inspiration and technical info.

Here's a schematic showing what pins to hookup on the CS8406.