Pay careful attention to the wiring. You can either solder direct or use the supplied connectors.
SSH into your Raspberry Pi using PUTTY and edit the config.txt file
sudo nano /boot/config.txt
Add the following code to the end of your config.txt file
#Enable DAC Audio
dtoverlay=hifiberry-dac
Ensure you save your changes
Open the Retropie settings menu and select SOUND SETTINGS. Select the following...
SYSTEM VOLUME: DEFAULT
AUDIO DEVICE: PCM
OMX PLAYER AUDIO DEVICE: ALSA