Close - it's actually got to do with "Phase changing" of the substrate. Both audio segments and data files are digital data on CD...
The CD-R media works by burning microscopic pits into the aluminum substrate in the disk - which is the same as how commercial CD's are burned, both audio and data.
The CD-RW uses a laser of a different colour (and therefore energy level) and lower power, which changes the microscopic structure of the substrate from "crystalline" to "amourphous" - where the latter does not reflect the laser light, like the burned pits in the standard aluminum. The different colour laser also has the capability to change the amourphous substrate back to a crystalline structure, which is how the disk is "erased."
However, the CD-RW media requires the different colour laser to be read (although it can be read by the MUCH finer beam found in a DVD player...) The CD-RW laser will read CD-R media easily, which is why the players are backwards-compatible. Upshot - the newer head units will read CD-R and CD-RW generally, while older ones will not. Also, DVD players will read pretty much anything. I also concur with the colour media issue - I refuse to use coloured substrate media for anything important. Pretty much all my CD media is either silver (aluminum) or gold (which is a pain to find... Haven't had any for a while, now that I think of it...) Make sense now, or clear as mud? 5-90