how does digital coax produce stereo?

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.