They do it with all games that use steamworks, their API for security/registration/server lists/friends management/etc. They can’t really do it with other games because they don’t have the authority to validate cd keys and stuff with the central service, but any game they do have control over they’ll let you download/play over their service regardless of where you got it from. More and more games are using the steamworks API - this is somewhat controversial since in theory it could make people who weren’t on steam but have to authenticate through it to install their game more likely to just use steam in the future, disadvantaging other distributors, but in practice I like it a lot. It lets you directly invite/join friends easily, integrates with community profiles, provides a unified achievement architecture, etc.
Anyway, yeah, I’ve been all digital for a few years now. The last game I remember buying a retail copy of was in 2006. I do have a few disk-based games that I got as packaged as part of bundles with hardware, but even those are a pain in the ass because I have to start digging through boxes if I want to reinstall them. Dealing with optical media is such a pain in the ass after you’re used to just having a giant list of your games that you can open and start playing in a second.