So whats my AVR exactly doing when its decoding?

I have an older 5.1 Blue Ray Home Cinema system from Sony connected with Optical cable and it doesn't seize to amaze me how much one can get for so few money. But there is something I dont understand: I have passthrough activated on my TV and Android Box, and I throw at it whatever there it is: It just takes everything and it sounds good and with very decent surround.

9.1? 7.1? True HD? DD? DD+? DTS* DTS-HD. Doesnt matter whater, it just eats everything without any issues and sounds great. I can even hear a difference between TrueHD and DD, it sounds more 3D, fuller, clearer and with more details.

How is that possible? What does the AVR in the BD player exactly do, so that it accept all these formats THROUGH optical (which is supposed to have limited bandwith) and create a great result.

Any ideas how this miracle is possible?