If you select PCM, the player will do all the surround sound and digital audio decoding of Blu-ray audio tracks and convert them into Uncompressed PCM tracks.
If you select Bitstream Re-encode, the player will decode all the audio tracks to PCM and then re-encode the tracks to DTS in bitstream form. The advantage here is that if you have an older receiver that does not have HDMI audio input capability, you can access all of the Blu-ray sound tracks via the Digital Optical connection in DTS bitstream form. Your receiver can then decode the DTS bitstream.
Lastly, if you select Bitstream Audiophile, the Player does not do any decoding of its own, but sends the primary Blu-ray sound track information to a receiver in bitstream form so that the receiver can perform the decoding functions. However, to take full advantage of this, your receiver must be able to decode the Dolby TrueHD and DTS-HD Master Audio formats. Also, another downside is that only the primary soundtrack is accessible. Additional commentary or special feature soundtracks may not be be accessible using this setting. To provide consistent access to all Blu-ray soundtracks that may be present, it may be better to use the other two options. On the other hand, the Audiophile setting provides the best audio quality possible from your Blu-ray discs, if you have a compatible receiver to deocde the information.
The next category is the PCM downsampling setting. Depending on your receiver's capabilities, you can set this on the "ON" position, which downscales PCM audio to 48Khz, while the "OFF" position sets the PCM audio to 96Khz. Without going into detail, think of this as similar video scaling, only for audio. Consult your receiver's user manual to find out if it is 96Khz compatible.
Lastly is the Dynamic Compression category. This is actually a simple and very useful control. What this does is make loud passages softer and softer passages louder. In other words, if you don't the exaggerated impact of loud explosions or effects and the sometimes too-soft dialog tracks on Blu-ray discs and DVDs, you can use this to shrink the distance between the loud and soft passages. This is very useful if you like to listen at lower volume levels.