These rotary encoders output gray code which you can interpret using a micro controller and find out which direction the shaft is turning and by how much. This allows you to add feedback to motor control systems. Encoders of this kind are often used in balancing robots and dead reckoning navigation but it could also be used as a very precise input knob.
Please note the encoder has an open collector output - it will need an external pull-up resistor.
Note: these are relative encoders.
