spdif cable is a small 2 pin cable for digital audio. One probably came with your video card.
Hdmi carries audio and video, so the spdif cable will output the audio from your motherboard to the video card. You will have to change to a digital output in the sound preferences once you get it hooked up.
here's a pick of my computer with the spdif cable.
http://img399.imageshack.us/img399/7128/img0137.jpg <-- larger pic
the small white connector with the red and black wires connecting to the video card on the right side of the pic is the spdif cable. on the left side of the pic you can see where it connects to the motherboard. The motherboard in the pic is a gigabyte, so the spdif output prongs should be in about the same place as yours.
Windows 7 only supports one audio device output at a time. So if you are running desktop speakers and digital audio, you will have to switch to whatever one you wish to use at that time in the audio preferences.
