As jonathanped said, they can be used for either input or output. You have to call the pinMode function
So to make digital pin 10 an input
pinMode(10, INPUT);
To set it for output
pinMode(10, OUTPUT);
One thing to add though is that it doesn't have to happen in the setup function but almost always that is where you want to set it. It can be set anywhere at anytime and you can even change the mode in the same program. This is rare however and the only time I can think when one does this is with the PING sensor which requires you to send and receive a signal on the same pin.
Hope that doesn't add to the confusion. 