Converting analog to DSD is a pretty simple process in some respects. Even simpler than PCM. But here's a case where the concept may be simple but the execution is not. However, in order to understand how it works, we don't really need to wade into the details.
Basically we have a fixed clock running at 2.6MHz (single DSD, analogous to 176.4kHz in PCM) or twice that at 5.2MHz (double DSD, analogous to 352.8kHz in PCM). This clock is just plugging along making its little square waves that will eventually become the actual bits that form the music. In fact, the 1-bit we talk about is from this clock, producing a steady stream of 1-bits all at the same speed and interval.
So, picture a a guy standing at a gate. Behind this gate is the steady stream of bits moving along at 2 million, 600 thousand times a second. The gatekeeper's job is to open the gate and let some of the bits through the gate whenever he hears some music. If he hears no music, the gate is shut, none of the little bits can escape. If he hears some music faintly playing in the background, he very carefully opens the gate and lets a few of the bits out. The louder the music he hears, the more bits he lets out.
Now, add to this picture a neighbor to the gatekeeper that's in on this scheme to release bits. The neighbor can hear the music with one ear and with the other ear, he's able to sense the number of bits being released by the gatekeeper. His job is to compare the number of bits released with the loudness of the music and if there's not enough, or if there's too many, he signals the gatekeeper to release more or lessen the flow.
Between the gatekeeper releasing bits and his neighbor, keeping a watchful eye on his activities, the number of bits goes up and down in direct proportion to the music (the neighbor providing a constant feedback to keep the system correct). That's DSD or Pulse Density Modulation. Now, remember a couple of things: the bits are always the same size, always the same speed. All we're doing is letting more (higher density) or less (lower density) through the gate. If you just open the gate and let all the bits flow without any change, that's as loud as the music can ever get. Close the gate and let nothing through, that's as quiet as it can get.
Keeping that picture of changing density in your mind and remembering that the bits are actually just energy - electrical energy - then it isn't too big a leap to imagine that moving electrical energy can make music. After all, isn't analog just moving electrical energy? Sure it is. In fact, the only difference between the DSD moving energy and the analog moving energy is all those little stops and starts of the single bits. How do you remove those and fill in the small gap between bits?
A DSD DAC which, in its simplest form, is nothing more than a resistor and a capacitor. Remember? Ten cents worth of parts go into a simple DSD DAC and those parts smooth out all the transistions and you are left with ...... wait for it .......
Analog.
