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A .cue file is often packed with a CD Image or with lossless audio to be burned directly to a CD. A .cue file or a "Cue Sheet Track" can be opened by many CD burning software titles. It provides information on the CD image file or on the audio that is important to the burning software (such as locations of track breaks, the separation of songs on an audio CD is the result after burning).
The most common type of file a .cue file is packed with, is a .bin file. The cue/bin combination is probably the most used for CD images right now. It is very easy to use software to either burned a cue/bin to CD or to rip a CD into a cue/bin image.
Cue/bin images can also be mounted onto Virtual CD Drives, through use of software like Daemon Tools.
Related software tools
BurnAtOnce is a cdrdao/cdrtools GUI for windows
CD-DA X-Tractor (Freeware)
CD-DA X-Tractor is a rather straight-forward AudioCD ripping software with built
Nero Multimedia Suite (Nero Burning ROM) (Shareware)
Nero is the best and most complete DVDR / CDR / Blu-ray all-in-one software