Massively parallel sequencing technologies have long been used in both basic research and clinical routine. The recent introduction of digital sequencing has made previously challenging applications possible by significantly improving sensitivity and specificity to now allow detection of rare sequence variants, even at single molecule level. Digital sequencing utilizes unique molecular identifiers (UMIs) to minimize sequencing-induced errors and quantification biases. Here, we discuss the principles of UMIs and how they are used in digital sequencing. We outline the properties of different UMI types and the consequences of various UMI approaches in relation to experimental protocols and bioinformatics. Finally, we describe how digital sequencing can be applied in specific research fields, focusing on cancer management where it can be used in screening of asymptomatic individuals, diagnosis, treatment prediction, prognostication, monitoring treatment efficacy and early detection of treatment resistance as well as relapse.