City directories are primarily useful for locating people in a particular place and time. They can tell you generally where an ancestor lived and give an exact location for census years. They are also useful for linkage with sources other than censuses.
Some city directories list adult children who lived with their parents but were working or going to school. Look for persons of the same surname residing at the same address. If analyzed and interpreted properly, these annual directories can tell you (by implication) which children belong to which household, when they married and started families of their own, and when they established themselves in business. In cases where specific occupation is given, you can search records pertinent to that occupation.
Once an ancestor has been found in a city directory, there are several ways the information can be used to gain access to, or link with, such sources as censuses, death and probate records, church records, naturalization records, and land records.
Taken from Chapter 11: Research in Directories, The Source: A Guidebook of American Genealogy by Gordon Lewis Remington; edited by Loretto Dennis Szucs and Sandra Hargreaves Luebking (Salt Lake City, UT: Ancestry Incorporated, 1997).