Quick beginner wiring question (rotary encoder)

I have an encoder (http://www.mouser.com/ds/2/414/en11-6592.pdf , standard rotary encoder nothing tricky) Im trying to hook up to my mege 2560. I found this page (http://pgdev.pighixxx.com/ABC/SET/s2.pdf , pg.5) to help but It looks like I need to connect the two out signals on the encoder to two individual digital pins on my board. My understanding of an encoder is that it outputs a single binary signal based on the position of the rotor, and therefor should only need to use one pin on my arduino. How do I hook this up (A, B, C pins) and what kind of signal am I going to get?

i just found another forum post with a similar question. Looks like I do need to use two pins.

I guess I have my answer.

Yes, this kind of two-wire signal is known as "quadrature", specifically digital rather than
analog, and it universal in the world of rotary encoders. You will probably want to
consider using the INPUT_PULLUP option to pinMode().