The difference between a S/PDIF connector and a TOSLINK connector

The correct one to use depends on your case. Those cables are typically used to connect front panel headphone/microphone ports. While the connectors may look identical, the pinouts are different and not really interchangeable. The matching connector on your case should be labelled accordingly, I know mine is labelled HD Audio.

HD Audio is intended to replace AC'97. HD Audio is generally more capable. The linked articles have more detail on that. For average home use, there shouldn't really be a noticeable difference.

The rest of this answer will be referencing the Intel Front Panel I/O Connectivity Design Guide, page 19. They also have schematics on pages 20 and 25 if you care. I will be adding emphasis.

Front panel audio design in conjunction with motherboard audio header design is dependant upon the type of audio CODEC being used on the motherboard. In the past, AC’97 Integrated Audio CODECs were prevalent. With the introduction of Intel High Definition Audio, many new motherboard designs are switching over to High Definition (HD) audio CODECs. Designers should note that AC’97 and Intel High Definition Audio front panel motherboards and I/O cards implementations are different and may not be directly compatible or interchangeable

Some sources indicate that it is/may be necessary to switch audio output modes in the BIOS configuration or with a jumper. It is recommended that you look at your motherboard manual. ^{_{My own motherboard (MSI P67A-C45) manual just says it's compliant with the Intel Front Panel I/O Connectivity Design Guide, not all that much information.}} Dell manuals describe it as front audio (F_AUDIO) and don't indicate any such jumper, and only describe the BIOS option Onboard Audio Controller as Enabled or Disabled (Enabled by default).

Passive AC’97 analog front panel dongles (ones which leave the 5V Analog pin-7 line unconnected on the dongle) may be used with the Intel® HD Audio analog front panel header. But note that the front panel jack detection and re-tasking functionality will be lost as the AC’97 jacks cannot support connection to the SENSE line. In addition, software must be aware that an AC’97 dongle is being used with an Intel® HD Audio analog header since the software might need to dedicate codec ports that are connected to the header to meet the product’s intended functionality.

You might be confused about different concepts:

• FLAC is a lossless audio codec (its container also happens to be called FLAC, but the main idea here is the actual codec).
• WAV, on the other hand, as a container can hold numerous kinds of audio codecs, but mostly, you'll find PCM-encoded audio.¹

Since FLAC is all about mathematically lossless compression, FLAC files will be smaller than corresponding PCM-encoded WAV files, since PCM doesn't allow for lossless compression and just represents the data as-is.²

So, simply put: Take a WAV file with PCM-encoded audio, and the corresponding (mathematically equal) FLAC file will be a tad smaller. The downside is that FLAC is not as widely supported as WAV. For example, most (all?) operating systems won't play or convert FLAC files without extra software.

Bottom line, I'd say their practice is redundant but a nice gesture for folks who don't want to download massive amounts of data and prefer the compressed version.

_{1 – For example, variants of MP3 can also be stored in a .wav file.
2 – The analogy for images would be that BMP files contain the raw image data in an uncompressed form, whereas a (lossless) PNG is much smaller, but showing the exact same contents.}