When converting a file, media conversion utility usually decodes an audio file (using for example MP3 decoder when converting from MP3) and then encodes it (using for example OGG encoder when converting to OGG). The decoded data can be stored in a memory, a temporary wav file, etc.

Converting one compressed file to another is OK. Converting to .wav first definitely won't give you quality any better. Likewise it shouldn't make the quality worse (actually it depends on the audio codec settings), but you may lose metadata (the artist, the title,...) when converting to .WAV so there is no any sense in this conversion.