The example in this post shows how multiplexers can be used to increase the number of I/O pins for sensor readings or outputs. A multiplexer chip uses control pins to toggle between multiple channels (3 control pins –> 8 channels, 4 control pins –> 16channels).
also see: Tom Igoe’s Multiple Inputs to a Microcontroller Using a Multiplexer
also see: Charlieplexing >> http://en.wikipedia.org/wiki/Charlieplexing
8 channel multiplexer >> HCF 4051BE
16 channel multiplexer >> CD 4067BE