It's digital, but not necessarily square. You'll need a pull-up resistor.

For sensored motors, you'll be fine if you use one of the Hall sensor outputs. But if you want to have more than one pulse per motor revolution to get more data points during acceleration, stick with the optical sensor. While it's true the Hall sensors can be processed to give six pulses per revolution, those pulses will not be evenly spaced due to inaccuracies in sensor placement and rotor magnetization. It's pretty common to see a 3 degree error, which is 5% of the 60 degree steps between commutation. That's a very large error!

There are also plenty of racing classes using sensorless motors, and they will need the optical sensor.