AC3 is Dolby Digital and yes it is all one stream (digital) that is decoded and sent to the proper speaker. It is encoded that way, so the decoder knows what to do with each channel's information.
So an AC3 file is like a large pipe (the single digital stream) that has six smaller pipes contained inside of it (the discrete channels)?
Then, the job of the decoder is to extract those those six channels and correctly route them to the right speaker.
When I first read your post, I thought you were saying all the audio data from a 5.1 mix is stripped of its channel information and blended together into one huge mix. Much like sugar, flour, and milk is blended and baked into a cake. And that the decoder, in effect, "unbakes" the cake so that the sugar, flour and milk go back into their original containers.