Microstation and AutoCAD files are a supported GIS formats in ArcGIS and have been for many years. CAD features classes are a valid source of ArcMap layers and are valid as input to most geoprocessing tools, including those that copy features from one feature class to another. These data manipulation tools like COPY FEATURES, APPEND, MERGE and FEATURE CLASS TO FEATURE CLASS all have their own specific subtleties and use cases for moving features from one data set to another. These tools automatically convert data from one data format to another and from one coordinate system to another; Shapefile to file geodatabase to enterprise geodatabase etc. In the case of the read/only CAD feature class this means that you can use these tools with CAD as input to effectively convert CAD data to GIS data. When working with CAD text to create geodatabase annotation the IMPORT CAD ANNOTATION tool is the way to go.
In ArcGIS 9.4 the context menu for a CAD layer in ArcMap guides you directly to the preferred tools to convert the CAD features to other GIS data sets. Right-clicking on a CAD layer in ArcMap presents you with the choices Convert CAD Feature Layer or Convert to Geodatabase Annotation. Other methods for copying and converting data are still available such as using copy-n-paste in an edit session or other tools like COPY FEATURES listed above. In fact these new context menu choices direct you to the existing FEATURE CLASS TO FEATURE CLASS tool or the IMPORT CAD ANNOTATION tool in the as of CAD text. The FEATURE CLASS TO FEATURE CLASS tool is preferred over the similar COPY FEATURES tool in that it includes a query parameter that is useful in filtering the CAD data that you want to convert.
The new CAD TO GEODATABASE tool replaces the obsolete IMPORT FROM CAD tool and combines the functionality of several existing tools to streamline the conversion of one or more CAD files into a geodatabase.