Each channel's word is alternated. First left then right then left, etc. It is happening so fast (up to 256x sample rate) that the dac has plenty of time to decode and manipulate output voltage on each channel.
The information is digitally encoded, that is, it is a computer-type representation. Numbers. 16 bits per number.
The numbers represent voltages. 65536 different levels of voltage, each measured 44100 times per second, for each channel, so there are a total of 88200 numbers per second. The numbers are turned back into voltages by a device called a DAC, a Digital-to-Analog Converter. The DAC has 2 output channels, and as stated in the previous post, the circuit discriminates between the numbers intended for the left and right channels, which are sent alternately.
Its called 'multiplexing'. FM stereo achieves a similar result - two channels of sound sent over one comms channel - FM stereo though uses frequency division multiplexing, S/PDIF uses time division multiplexing.