A DLL is a piece of PC software. There are actually two alternative methods used by different controlpanel versions, either using an alt_jtaglib.dll or FTD2XX.DLL directly. Both are undocumented, however.
There have been some discussions related to virtual JTAG recently in the forum, also regarding partly missing documentation. For the FPGA respectively Quartus side, it's practicable documented, particularly in sld_virtual_jtag Megafunction User Guide. The Megafunction is availabe from Megawizard for user specific applications, but also used internally for all JTAG based soft tools, e. g. PFL, SFL, Source&Probe or In-System Memory Content Editor, SignalTap.
From the PC side, Quartus offers a Tcl shell for virtual JTAG commands only, also some tools to operate a virtual UART with NIOS II. Knowing the virtual JTAG coding, you could also connect it with third party JTAG interfaces or by directly accessing USB Blaster (as the said Control Panel does).