When using biab, if a instrument is select (one without a realtrack), how is the sound actually created on the pc? Is is just using some generic software (general midi)? Is there a way to improve the sound quality for those type sounds?

I'm using a firewire hardware interface (focusrite saffire) for connecting my instrument to pc and have the pc sound running into a pair of powered external speakers via this interface. Inside an audio program I usually choose the saffire as the output. I notice that there is usually a midi output selection option in many daw's and wasn't sure exactly what this should be set to. Is this just for midi signals?

Thx
Rut