For students to be able to participate fully in the course, they need to have accounts on the site. The students can either create their own accounts, or a site administrator can create these accounts for them (in this case, you can create one for them).
Creating accounts for the students, as opposed to having students create their own accounts, requires more work when setting up your course. However, once your course is up and running, there is no difference between these methods. The best way is largely a matter of personal preference.
These instructions cover the default enrollment process and then describe how to customize that process. Details of how to expand and customize student profiles are covered in more detail in Chapter 11, Social Networks and Extending the User Profile.