Rotary encoders are used similarly to potentiometers. They're different from potentiometers in that an encoder has full rotation without limits. They output gray code so that you can tell how much and in which direction the encoder has been turned.
This encoder is especially cool because it has a red/green LED built in, as well as a push-button. COM-10597 sold separately, would look fantastic with the clear knob that goes with this potentiometer as shown on diagram 3.
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