Volume control implementation

In this post I am referring to Windows 2K/XP, things seem somewhat
different in Vista and I haven't had a chance to investigate it]

There is volume control in Windows Media Player (or Winamp, or any other
player application) and there is one in Windows control panel. Can anyone
explain what each of them actually does?

My current understanding is that volume control in the player makes player
application scale audio stream programmatically, after which audio stream is
sent to the hardware.

Volume control in the Windows Control panel doesn't change audio stream
programmatically but instead works as a "knob" for hardware amplifier on the
sound card.

Am I correct? Is there any information on MS website that explains all this?
So far I haven't found it.