Let's take Lidge as an example for the DL (assuming he'll start the season there, haven't heard yet for sure). Once the Phillies announce he's been moved to the DL, Yahoo will put a red "DL" tag next to his name. Once that happens, you can move him from your active roster (RP or BN position) to a DL position. When you do that, you will have one empty spot on your roster which you can fill with a free agent. The free agent can be another RP, but can also be a SP or even a batter at any position. It's up to you who you want to replace him with.

You have 3 DL spots. If you have 4 players on your team that are tagged DL, you can have 3 of them on the DL spots so you can replace them with free agents. The 4th player will have to occupy one of your bench spots, or you can drop him into the free agent pool and replace him with another free agent (not a good idea if he's a good player, because someone else will pick him up once he clears waivers).

Now, let's say Lidge has been on the DL for 2 weeks and he's finally been activated by the Phillies. Yahoo will remove the red "DL" tag from his name, but you actually can leave him in the DL slot as long as you like. The trick is you can't make any other transactions (trades or free agents) as long as a non-DL player is parked in your DL spot. However, you can still move players between active positions and your bench, so it can be a useful place to keep a hurt player until you're sure he's healthy.

In order to move a player from your DL to your roster, you will have to drop a player to make room (or swap him with another player who has the DL tag but is on your bench).

When this comes up, feel free to ask me questions before you make moves. Incidentally, if you make a mistake (like dropping someone you didn't mean to) I can fix it, although you need to tell me right away so it doesn't affect the league.