With the recent upgrade to Moodle 2.6, instructors have a new function available: If a student uploads an assignment in the form of a PDF file, the instructor can make various types of annotations to the file directly within Moodle. Previously, they would have to download the file, use some program that provided annotation functions, then upload that revised version to Moodle, for the student to download. Now that can be done within Moodle.
Annotation functions include highlighting, circling, drawing, stamping an available graphic (like a checkmark or an X), and writing Post-It-type notes.
Here’s a quick demo: