Lotus seeds can be eaten as they are and taste like a soft nut. You also use them to flavour soups and to add more texture to rice porridge. Dried, they're a common ingredient in noodle soup seasoning packets.
They can be ground to a paste which is then sweetened and used to make fillings in sweet dumplings, in a similar way to yellow soy bean or and almond paste are used.
Below you can see the seed head, you'll see these sold on the street in bunches exactly like this, the seeds needs to be broken out of the head, then the outer casing of the seed peeled off.
Peel off the outer skin to get to the seed itself.