What time does sound good to you?
What time sounds good to you?
Is there a difference?
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With ordinary sentences we distinguish questions from statements by flipping the subject and the auxiliary verb (Subj/Aux inversion), and if there is no auxiliary in the statement form, we bring in do to serve the auxiliary function (Do support):
This time has been very pleasant →Q: Has this time been pleasant?
This time seems good to me →Q: Does this time seem good to you?
But when you ask a question using a wh- word as the subject, or as a determiner on the subject, the wh- word is what tells your hearer that this is a question; there is no need for Subj/Aux inversion, and therefore no need for Do support either:
This time sounds good to me →Q: What time sounds good to you?
As snailboat points out, does can be used to emphasize contrast with a prior negative:
A: Shall I put us down for the seven o'clock show? B: No, I don't much care for seven.
A: Well, what about two o'clock? Does that sound good to you?
B: No, two's no good for me.
A: (exasperated)Then what time does sound good to you?
If "who/what" or "what/which+noun" is the subject you don't use the question form with to do. So sentence 1 is wrong and sentence 2 is correct. http://www.englishgrammar.org/subject-object-question/
Who goes there? Who has done it? Who said this?
What is it? What's the matter? What makes the Earth turn round its axis?