That type of sensor generates a voltage that is proportional to the temperature so that you would have to connect this to one of the arduino's ADC inputs.
The transfer function is just an equation which shows how to calculate the temperature from the voltage (or vice versa).
Reorganizing the linear equation on page 6 slightly, the output voltage V at a temperature T (Celsius) is given by:

```
V = 1.8663 - .01169*T
```

A simple example is that when the temperature is zero degrees C, the output voltage will be 1.8663V.
For use with the Arduino, you will be measuring a voltage on the ADC and then calculating the temperature from that. Reworking the equation to solve for T gives:

```
T = 85.543*(1.8663 - V)
```

so, for example, if V=0 then T=159.65C
The problem with this device, as is evident from the tables on pages 6 and 7, is that its accuracy varies depending upon the range of temperatures you wish to measure and the chip's supply voltage.
The parabolic equation given on page 6 will give more accuracy but it is still dependent upon the operating temperature range and supply voltage.

Pete