ASIO

The Audio Stream Input/Output (ASIO) architecture is developed by Steinberg to create a low latency, high performance, easy set up and stable audio recording environment.

It is a proprietary protocol.

ASIO4ALL is freeware but it is not ASIO but Kernel Streaming.

ASIO bypasses the normal audio path from the user application through layers of intermediary Windows operating system software, so that the application connects directly to the sound card hardware. Each layer that is bypassed means a reduction in latency, the delay between an application sending sound to the sound being reproduced by the sound card. In this way ASIO offers a relatively simple way of accessing multiple audio inputs and outputs independently. Its main strength lies in its method of bypassing the inherently high latency of operating system audio mixing kernels (KMixer), allowing direct, high speed communication with audio hardware. Unlike KMixer, an unmixed ASIO output is "bit identical", that is, the bits sent to the sound card are identical to those of the original WAV file, thus having higher audio fidelity.

Source: http://en.wikipedia.org/wiki/Audio_Stream_Input/Output

The audio stream transferred by the K-Mixer (mixing software implemented in the operating system's kernel) may not be bit-exact; it is often resampled because the K-Mixer can only process audio streams that have the same format (48kHz/16-bit). And the resampling process worsens the audio quality. The windows plugins like Volume, Balance etc.. are only working with 48kHz music signals. Even if the output is bit exact, the resampling algorithms may induce jitter resp. signal alterations.

Source: http://www.aqvox.de/Asio-USB-Audio-installation-e.htm

Bypassing the Kmixer seems to be a must in the audiophile community.

However there are claims that this is not needed because XP is able to deliver bit-perfect output.

Windows XP will transmit up to 96kHz, 24-bit audio bit-transparently (perfectly, bit-for-bit), when the media player, device, and OS settings are configured correctly. This article will guide you in properly configuring your operating system and media player.

Benchmark Wiki

Not all ASIO drivers are created equal.

......some people installed ASIO4ALL which looks like an ASIO driver but sends output to a low level interface (kernel streaming) rather than to the audio hardware like a real ASIO driver. There are two practical reasons why this is less desirable than an actual ASIO driver: The ASIO4All module hasn't been tested with most audio devices that it will be used with. And the kernel streaming interface is far less tested as an entry point for the audio stream than Wave Out, DirectSound or ASIO......

Old Listener

That being said, not only can I hear a difference in software players, but I can hear a difference in the ASIO plugins for them. This Japanese code writer made some really nice ASIO plugins for both Winamp and Foobar, which sound way better than the stock ASIO plugins.
http://www.un4seen.com/forum/?topic=8980.15

Many users reports audible differences between different implementations.

In Reply to: RE: How are you using ASIO4ALL? In other words, what plugin it serves as input for? posted by TopPop on October 11, 2008 at 12:31:55:
Otachan ASIO plugin is replacement for that - and, according to many (myself included), much better sounding.

The same claims are made regarding differences between versions of Otachans driver.

The "black magic" of the Otachan versions of plug-ins is equally amazing: if you translate his developer notes from Japanese, you can see that most of his changes were in the User Interface and error-handling code, yet there are many, many posts here that discuss the vast differences between these versions of his plug ins. Highly amusing!
http://www.audioasylum.com/cgi/vt.mpl?f=pcaudio&m=41234

These profound differences are the normal placebo.
If you go the ASIO way, do so in XP, not in Mac, Linux or Vista.