The Nexus 7 has a capacitive touch screen and doesn't have a digitizer - so it only can use a stylus instead of a digital pen. The accuracy of a stylus is worse than of a digital pen - it can't for example distinguish pressure levels.
Using a touch screen of an Android device as a mouse is possible, for example by installing andromouse or remotedroid on both the device and PC. You can then use WiFi or Bluetooth for communication.
This will not work as a fully featured graphics tablet though - think of it like a touchpad in a laptop.