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For further information see Technical Analysis of Stocks & Commodities, June 2009, Sylvain Vervoort - Average True Range Trailing Stops. The article can be downloaded from STOCKS & COMMODITIES Magazine.
ATR is another arrow in your quiver. How you use it depends on your strategy.
Are you buying pullbacks at support? You know the market may not bounce right at support, so you can use the ATR so you can buy as close to support as possible but are not stopped out by run of the mill, everyday volatility.
Some people use it as a trailing stop. I think most people use it as their initial stop. 2 times ATR or 2.5 times ATR etc.
The Turtles moved up their ATR stops as they laddered into positions, like a trailing stop only they set one after the last position was entered and never moved it up again. When they had a full position and the price moved far enough in their favor they used different exit strategies to give price a little more room.
I believe Van Tharp's book "Trade Your Way to Financial Freedom" discusses using volatility stops to find your position size. It's a pretty dense book but worth a read. Fat tails advice on reading Svylvain Vervoort's work is a great suggestion. I think he came up with an alternative to ATR that takes more factors into consideration when calculating.
This is more of a trend following/position trading answer. Mean-reverters would look at it differently, like using channels etc. That was a mouthful, I hope it helped.
how would you use 
