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Microsoft added "Windows Sonic" spatial sound to Windows 10 back in the Creators Update. Windows Sonic for Headphones is disabled by default, but you can enable it for virtual surround sound. This option is available on the Xbox One, too.
How to Enable Windows Sonic
You can easily toggle this feature on or off from the sound icon in your notification area. Right-click the speaker icon, point to Spatial Sound, and select "Windows Sonic for Headphones" to enable it. Select "Off" here to disable Windows Sonic.
If you don't see an option to enable spatial sound here or in the Control Panel, your sound device doesn't support it. For example, this option won't be available when using built-in laptop speakers.
You can also access this feature from the Sound Control Panel applet. To launch it, head to Control Panel > Hardware and Sound > Sound.
Double-click the playback device you want to enable Windows Sonic for, click the "Spatial Sound" tab, and choose "Windows Sonic for Headphones" in the box. You can also enable Dolby Atmos for Headphones on the same dropdown menu. This is a similar spatial sound technology for headphones. However, it uses Dolby's technology, and requires a $15 in-app purchase to unlock.
You can also toggle the "Turn on 7.1 virtual surround sound" option on or off on the Spatial Sound tab.
On an Xbox One, you'll find this option at System > Settings > Display & Sound > Audio Output. Choose Windows Sonic for Headphones under Headset audio.
What is Spatial Sound?
As Microsoft's developer documentation puts it, Windows Sonic is a "platform-level solution for spatial sound support on Xbox on Windows." Application developers can use spatial sound APIs to "create audio objects that emit audio from positions in 3D space." All applications can take advantage of this---new UWP apps, traditional Windows desktop applications, standard PC games, and Xbox One games.
This is exactly the data that Dolby Atmos-enabled receivers need to mix their spatial sound, so Windows Sonic enables full Dolby Atmos support in the latest versions of Windows 10. When paired with a Dolby Atmos-enabled receiver and speaker system, sounds you hear can be positioned in 3D space---vertically as well as horizontally---for an improved surround sound experience.
So, for example, if a sound is coming from above you and to your right in a movie, TV show, or video game, the upwards-firing or ceiling mounted speakers on the right side of your room will place the sound in that location---assuming you have Dolby Atmos.
The Dolby Access app in the Store will help you set up Dolby Atmos home theater audio with a Windows 10 PC.
