Yes, you can use them at the Disneyland Hotel, the Grand Californian and Paradise Pier. The points at the GC are the highest and those at PP are the lowest. Right now an added benefit is that you don't have to pay the $95 exchange fee to use your points at DL (unlike staying at non-DVC resorts at WDW). That will probably change once the Grand Californian Villas open and we will probably not be able to book regular hotel rooms at the GC at that time as well.
We just came back from a stay at the Disneyland Hotel and it was fantastic!