I know what analog and digital recording is.. which is why I was just a little confused by your statement that it records in analog. Is there a tape recorder or something on it? Judging by the specs, it has a AD converter on it that picks up the analog signal, converts it to a digital signal, and sends the signal to your recording software via USB where you record it digitally.
I haven't used it, so I figure you're the best person to clear that up, but I was under the impression that all typical microphones are analog devices, and what qualifies something as an analog or digital recording is the device that does the actual recording (I.E. magnetic tape recording = analog, vs. computer software recording = digital).

I'm probably just picking at straws here, but my question was whether the microphone itself is doing the actual recording or simply serving as a microphone with an analog to digital converter so you can record digitally without the need for a mixer or audio interface with an XLR input and AD converter.

If so, that's awesome and I will be looking into that. I hate having to screw with my mixing console and audio interface when doing on-the-fly stuff.

As far as I know it is just converting it but I believe there is a way to bypass that. My friend has one and he has it set that its only digitalized when actually being put onto a computer, otherwise its hooked up to a 4track or something of that sort. I am by no means an expert though, let me ask him and Ill get back to you when Im more informed.

if you go with a 4 track or an 8 track, I recommend TASCAM products. thats what my band uses for demos and such. They're pretty simple as far as recording equipment goes.

And the number of tracks you need comes down mostly to how you mic the drums. More mics = more tracks needed

Okay I'm lost heree. I wanna record guitar, bass and drums. Would I buy any old mic, plug the mic into my computer, play each instrument indivually and put all of the tracks together in some software? or how does this all work?

Yes. If you have a non-linear editor (most music programs nowadays are) it should be easy to just record each instrument over the last.

Okay great, what kind of mic do you reccomend? Can I use a single mic for all instruments, including drums?

Yes. I recommend a condenser mic, but if you're really really on a budget then a USB Microphone or a Karoke mic rigged into your computer somehow will work. If you want pro quality for those drums... well then no one mic won't work. But you can get a perfectly passable sound if you hang the one above the set. Try to make sure it's in a place where one of the drums in particular won't be coming in too loudly.

for a basic setup look into getting software like logic express with a firebox module ... a decent setup for under $400

I use Logic Pro on the mac and run a mic into a little sound bored i have and firewire it to my computer. Easy little setup but it gets great quality.