What is the function of the digital link on a DJM-900 from snd/rtn to an EFX1000?

No, you are correct and you're not missing a thing.  You can have effects units like the EFX-1000 or new RMX-1000 connected in 3 different ways...

1. Just as you had it, between the mixer and your amplifier.  The benefit of this is that you can layer all of the effects... Color, Beat and EFX.  The downside is that you are limited only being able to effect the Master output using the EFX.
2. Send/return.  Even though this way you can only use either the EFX or Beat FX at any one time, you can now use the EFX on any channel. The benefit, for example, is that you could be in the mix, playing 2 tracks, and you can then use the EFX to effect one individual channel instead of all at the same time.
3. Between a CDJ or deck, and the mixer.  This is a weird option, and is rarely used, unless you have multiple EFX units, as you are limited to having one EFX unit per channel.

When I had my EFX, I used it like you, between the mixer and amplifier.  I sold it and just got an RMX, which I'm now using via the send/return.  If you ask Pioneer, their general recommended response is usually for you to use send/return, but it's down to personal preference really.

Ahh right, thanks for clearing that up. Seems a bit daft that its like that don't you think?

Whats the RMX like? Looks like a very nice piece of kit on video, whats it like in reality? Does it have all the features of an EFX? Im seriously considering buying one!

Thanks again