IN the manual, MIDI channel setting is described as selecting the DMS channel 1-16 to assign to MIDI channel. What exactly does this mean? Does this set the MIDI channel that the device will accept input on from the external source? If not, what MIDI channel is used to accept input from an external source?

There are 16 MIDI Channels.

In order for MIDI devices to be receive and/or send MIDI information properly, the device must have a MIDI "ID", or MIDI Channel, from 1 to 16.

The reason is so you can "daisy chain' several MIDI devices and make sure each device is receving the proper MIDI information.

Hope this helps.