DTS is simply an audio format, a way of converting the analog signal into a digital one similar to Dolby Digital. It's a matter of sampling and converting the many distinct analog signals (one for each speaker) into a single digital output signal. Additionally some audio movie players can play DTS files (i.e. pass it on to the sound card) themselves again, much like the Dolby Digital format; some movies supply additional DTS tracks along Dolby ones.

Now as it happens, with the Creative card when you instruct it to convert all analog signals into a DTS stream the Windows PCM volume control (i.e. the trusty loudspeaker icon thing) is bypassed entirely. So if that wasn't set to maximum you would notice a drop in audio volume once you disabled DTS connect and the volume control is applied again.

One of the reasons to use DTS connect is because of the fact you use a Creative card. And Creative cards don't always play well with speakers (say the Logitech Z5500) when you connect them through Optical out. But the nice thing about DTS is that such speaker sets tend to understand that format natively which means you can use it to work around this problem.

Regarding upmixing: this is a matter of price points. Creative being Creative, they decided to disable this feature for some sound cards but not on the more expensive cards, of course. Possibly they sell software upgrades for the DTS connect (which as you might have noticed is a standalone product bundled with the rest of the Creative software) to get it, I do not know.