Digital signals are impervious to induced noise, so digital signal transfer (optical or digital coaxial) allows the audio signal to be transferred through a noisy environment (like your car) without picking up any noise in the process.
Well, they can replace the RCA wires in a system where the amplifier can accept a digital signal directly. In car audio, however, there are only a handful of amplifiers that can do so. So in reality, yes, the optical (or coaxial) digital signal is used to transfer the audio signal between the headunits, cd changers, processors, etc and regular RCA's would be needed to send the signal to the amplifiers.
