Generally speaking the Arduino platfom hasn't been known for its ability to create quality audio, however it is possible with the right software. A neat example of this has been created by Tim Barrass whose "Mozzi" Arduino library allows for various sound effects that are much more pleasant than a typical beep.
Audio output is via a PWM-enabled digital output pin, and can then be fed to a simple amplifier circuit or a PC for capturing. For an example of what is possible, check out the following video:
Kudos to Tim for sharing such a neat audio library, which you can download from his github page. And for more, we're on twitter, facebook and Google+, so follow us for news and product updates as well.