One of the features of Course Site is the ability for instructors to annotate PDF files that students submit for assignments. This annotation can be done from right within Course Site, but note, student files must be submitted in PDF format for the editor to work correctly.
By default, under Submission types, File submissions should already be checked. If not, simply check it.
When you are logged in to your Course Site course, click on the assignment you want to grade. You will see the list of submissions, as you usually do. Please note that this annotation feature only works with PDF files, so you may want to instruct your students to only submit PDF files if you want to use this feature for all submissions. Once you verify the student's submitted file is a PDF, click Edit, and select Update grade from the drop down that appears.
On the next screen that appears, scroll down to the Grade section. Within that section, typically just below Feedback comments, you should see Annotate PDF. Click the Launch PDF editor... button to open the PDF editor and begin annotating the file.
Once you are complete and save the file, your annotated version of their submission will show up on the assignment submission listing under the Annotate PDF column.