Both employees and customers often use the terms digital signature and electronic signature interchangeably. A digital signature is not the same as an electronic signature, however.
The primary distinction between a digital and electronic signature
An electronic signature, sometimes confusingly called an electronic digital signature, is defined by the United States Electronic Signatures in Global and National Commerce (ESIGN) Act as «an electronic sound, symbol or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.» In layman's terms, that means signing your digital document by drawing or typing your signature, inserting an image, adding an audio clip or similar means. There is no encryption used for these methods.
A digital signature is a process by which software uses PKI technology to embed a digital «fingerprint» into your document. When a recipient opens the document, their software uses this fingerprint to determine if the document has been altered. Digital signature processing does use encryption.
When to use
Digital signature authentication adds a significant layer of security to your document that an electronic signature alone cannot provide. Subsequently, people tend to adopt a digital signature procedure for more sensitive transactions.
Legal electronic and digital signature requirements
In most areas, the question of legality addresses electronic signatures. For example, in the U.S., an electronic signature usually is considered binding if you can show intent to sign, keep a record of the process you used to create the signature, demonstrate clear consent to do business electronically and can retain a reproducible record of the transaction.
You thus generally do not have to apply a digital signature to a PDF or other document to have a legal transaction, but because of the added security, most companies use both.