Digital outputs are a simple ON/OFF type of signals that can be used to control annunciators, lights, relays, power lines, flags - that is, all two-state output devices that are present in every aircraft cockpit.
Undoubtedly, the main purpose of digital output signals in you cockpit is to control all annunciators and various mode indicators.
Note that some indicators in your cockpit do not require receiving any data from the simulator for their operation. Often this can be an indicator that shows the current switch position/state (not the system state) and can be directly controlled by this switch.
When controlling the "On/Off" type of output device directly with controller pins all you should worry about is its power consumption. According to AVR tech spec, the maximum ("damage") current for a single pin in output mode starts with 40 mA, that is quite enough to drive most LEDs used as indicators. Likewise, any other directly connected device (actuator, integrated circuit, relays, etc) should sink the current no more than 20-40 mA.
Powerful output devices that have high-voltage or high-current consumption cannot be controlled directly from microcontroller pins, you should always use some kind of buffer circuit for such devices.
This can be a PNP transistor, a MOSFET or a relay. If you use a relay, make sure that it has buffered input itself (as mentioned above) or it's a low current relay having a coil with higher resistance:
Extended digital output in SimVimCockpit allows you to have 16 digital signals on any single output pin.
You have two options that you may use as extension for outputs - either using one of the 16-output LED drivers listed on the "Components" page or 74HC595 shift registers.
By default, DM13A driver IC is used as serial extension for digital output. This chip is a shift/latch register having 16 constant current outputs. That means that for all 16 LED outputs the current is set constant and each single output can sink the current by 3 ... 60 mA. The operating current is set with one resistor connected to the R-EXT input (terminal #23), that can have resistance between 1 ... 22 kΩ and will define the LEDs brightness. A potentiometer can be used for brightness control.
The driver itself can be powered using the same +5V from the system bus and other circuits in your system (V+), but for all LEDs you need to have another power source (+Vled) that can vary from 5 to 15 V, depending on your LEDs.
Same as for direct outputs, you can use a serial output as "On/Off" control signal for other circuits, relays, MOSFETs, etc. For this, instead of LED, use a pull-up resistor 1k connected to +5v bus and use this terminal as output pin for digital control. In the picture on the right you can see that output terminal #16 is used as digital output (all others can be used either for LEDs or digital outputs as well).
Such extesion "module" has 3 input signal lines - PIN, D and L. Connect the "PIN" input to the controller pin assigned for extended output in the configurator, and two other signal inputs - "D" and "L" - to the corresponding common bus lines ("D" and "L" output signals).
Along with LED drivers, you can use 74HC595 8-bit shift registers when it is more appropriate for you. You can extend a digital output using two registers in series, or one if you want to have only 8 outputs on the selected pin.
When using HC595 ICs you need to connect each LED to the register output terminal with a resistor in series (resistor can be 300 Ω to 1 kΩ ). Three input signal lines - PIN, D and L are connected the same way as for LED driver described above.
You can just buy several HC595 register ICs (about $1 for 10 ICs) and simply wire registers directly to the panel LEDs or make a printed board. The wiring diagram is here in the picture.
Another option is buying breakout boards with 74HC595 registers. You can find sample links on the "Components" page. All you need is to solder LEDs with resistors to the board outputs.
In SimVimCockpit you can configure several digital outputs for a multiple-LED indicator to display the current value of any numeric parameter as a linear or circle graph. This can be just 3 separate LEDs for 3 positions or a LED bar indicator with 3 to 16 sectors. In this example diagram the LED bar with 6 sectors is connected to outputs #11 to #16, and output #9 is used as digital signal instead of LED: