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This is the Audio Device Graph Isolation service, a part of Vista and 7's audio services. The real audiodg.exe is harmless, but like any file it could be infected. If it's not doing anything, it should be fine. The worst that can happen by ending it is your audio goes out, restarting your computer would fix that.
Advanced Audio Coding (AAC) is an audio coding standard for lossy digital audio compression. Designed to be the successor of the MP3 format, AAC generally achieves better sound quality than MP3 at similar bit rates. AAC has been standardized by ISO and IEC, as part of the MPEG-2 and MPEG-4 specifications.