DSG stands for Direkt-Schalt Getriebe or Direct-Shift Gearbox. This transmission uses twin electronically controlled clutches in place of the traditional single clutch to shift gears faster than a manual or automatic transmission. DSG Gearboxes don't feature a clutch pedal and are controlled in the same way as a traditional automatic gearbox.
The usual torque converter is replaced by the two computer controlled clutches, one which operates on the odd numbered gears and one which operates on the even numbered gears. It changes gears simply by dis-engaging one clutch and engaging the other far quicker than an experienced could change gears manually.
DSG gearboxes gives the driver numerous options when it comes to shifting gears. As well as fully automatic, most DSG gearboxes have the ability to change gears through a tiptronic manual mode, gearshift paddles and sport mode which quickens gear shifts.