Multi-channel really refers to any card that can output more than a single mono signal. This includes stereo as well but often refers to anything that has more than 2 channels. 4/5.1(really 6)/7.1(really
For LMCE any device that has 2 (or more) audio channels *could* be defined with a special "multichannel sound card" device template. I say *could* because you do not have to define any of these devices, they are usually used to house child devices that are "stereo virtual sound card"s. This allows us to split card that has 4/6/8 and split it into multiple stereo outputs, each with their own name, very useful for adding squeezeslave devices without adding additional hardware. Example: I have a motherboard in an onboard 7.1 analog audio (4x1/8" TRS connectors) and an hdmi output. I use the hdmi output for the LMCE output and have 4 stereo squeezeslaves setup on my analog onboard sound card. Each 1/8" jack is now a stereo pair that a squeezeslave outputs on. I get 4xaudio zones without adding any additional hardware.
It also allows you to do funky things like combine the output of 4 different channels down to 2. The key thing to remember here is that you never *need* to define one of these devices unless you wish
Yes what you describe works really well...we do this type of config in Dianemo all the time. In fact its a revelation once you start to explore the possibilities and the flexibility this offers. As you point out until the virtualisation of sound cards was implemented a physical 7.1 card was often only used for stereo out and the remaining outputs were inaccessible for any other purposes.