
[Note: I just tried to figure this stuff out about a month ago myself, from
various people on the net, so I could be wrong.]

The data is only ever read once (barring mistracks and such, of course),
and eventually gets turned into 44.1 KHz, 16 bit, two channel data.
Oversampling takes two discrete data points, and interpolates n-1 points
between them for n times oversampling.  When I asked, people said that the
interpolation was not simply linear interpolation, but significantly more
complicated.

Anyway, then, the purpose of oversampling is to move the "effective"
sampling rate up to n times 44.1 KHz, in order to use higher frequency
antialiasing filters.  For the same quality filter, higher oversampling
lets you build cheaper filters, whereas for the same price filter, higher
oversamplings lets you build better filters.  So, assuming the quality of
all other components in a CD player remained the same, oversampling should
allow a manufacturer to produce _slightly_ better sound due to anti-alias
filtering.