I can't say that I know exactly, but it seems to add the necessary
functionality for checking documents in (popup box that asks  for
description, title, categories etc) and it definitely adds the
functionality that allows you to create categories through the web
share.

The ActiveX component  embed the necessary code to enable basic web part
services. This is called
Digital Dashboard Services Component (DDSC)

Without it some of the client scripting capability of Web Part will be
disabled (mostly dynamic feature).

It allows for DDSC. With DDSC, web parts can talk to one another (like at a
travel site when you pick a flight and a web part next to the flight schedule
comes up with rental cars you could choose during the same time period as well).
The reason that it appears to you that everything is still working is that the
web parts that come with SPS do not use DDSC, therefore nothing breaks in a
default load if you choose not to load the ActiveX component. You will only
notice a problem if you add adiitional web parts that require DDSC. Also, if the
workstation accessing the SPS site for the first time has no rights to load
anything on their workstation, they will not get prompted to load the ActiveX
component but the status bar will show that it has not been loaded yet... this
will likely generate some calls to the helpdesk so make sure they know the right
answer to give.

I'm trying to utilize ddsc to get web parts talking to each other and
am getting a 'ddsc' is undefined error in javascript. Is it possible
the activex component  was not installed or could there be another
problem at play here?

How to bring the Digitial Dashboard(DD) inside outlook 2000? Do i
need install  any special component  to bring the DD.

Is my workspace home page is equal to DD or DD is different than the
home phage i am getting in my browser.

Outlook does strange things with links, so we built a specific dashboard  for
outlook today, and striped it down to an ActiveX Inbox viewer (one of the
default web parts I believe) and quick links to specific public folders.

To reference outlook folders -
<a
href="outlook://Public%20Folders/All%20Public%20Folders/Shared%20Contacts">Share\
d Contacts</a>

<a href="outlook:calendar">Calendar</a>

Be aware of the difference in syntax between a personal folder (outlook:) and a
shared folder (outlook://).

To depoly it to the organisation, we used a .reg file to set the outlook today
file to the new dashboard.

IN addition to what Richard said, you can also set the default home page
for Outlook to be the portal  home page.