In a nutshell, digital music distribution is the distribution of music in MP3 or other file format. There are a number of different kinds of digital distribution a band or label can have, and people may mean slightly different things when they mention digital distribution:
- Sometimes, digital distribution is done through a website that accepts everyone who wants to sell their music via that site. These digital distributors function essentially like record stores. They make the music available to people who want to buy it, but they are only involved in promotion of the music in a minimal way, if at all.
- Other digital distributors are also web based store fronts, but they do not open their site up to anyone who wants to sell there. They cherry pick the bands and labels they want to sell on their site, and as such there is a bit more promotion of the bands who are there.
- Lastly, some digital distributors are very much like traditional, physical distributors, except that they only work with digital music. These distributors typically represent a record label and go around trying to convince "store front" websites to stock that label's music. If a label has this kind of distributor, that distributor will make sure the label's music is placed on the two previously described types of distributors. They then will make sure new releases are added as necessary and collect and distribute the revenue from all of the sites, keeping a cut and paying the label.
You can find more information about digital distribution in these articles: