In the zipped file that one gets when downloading the NXT Toolkit, there is a PDF that is exactly what you are talking about. It's called just that; Getting started or something. There's another one two that goes over making NXT-G blocks, too.
Direct connect is basically when the VI is running on your computer, but it is communicating with the NXT and telling it what to do. The opposite of this would be when you make a VI that gets downloaded and run on your NXT. You download and manage such actions in the NXT Terminal, which is an addon that comes with the Toolkit. It's under tools>>NXT Tookit>>NXT Terminal or something like that.
Direct connect does not work with some things, so I think it might not work with the Hitechnic sensor (although I don't have any experience with it). To tell you right off the bat, it doesn't work with any degree or rotation functions with the motors either because of a technical reason (I think you can read more about this in the NXT Toolkit Bugs thread). That's why you don't see such VIs in the direct connect area of the pallet.
Hope that helps!
