I know the proper thing to do is to buy an amplifier for this purpose. But can I connect to my computer and get the output from the speakers? Works fine with recording, but not direct output. Is there any software available that can act as an amplifier on my computer(along with certain processor capabilities as well?)?
Yes, but be aware of the difference of microphone-in and line in: line-in () takes an amplified signal, while a mic jack socket takes an unamplified signal. Plugging an amped signal into the mic jack can damage your sound card. A strongly amped signal (like the output from a guitar amp) might also damage it even if you use line in, although it should be ok if you start with the volume down low.
If there is any kind of pre-amp in your guitar (like those with a battery-powered equaliser), it won't be strong enough to cause damage, but you might get a little bit of clipping if you use a mic jack.
For getting direct output, that depends on your sound card and your operating system. On most operating systems that I've used, if you go into the audio setup, you'll see that the mic channel has the volume up, but is muted. The muting only affects the through-put to the audio-out. Try un-muting it, and see if that lets the sound through.
You don't mention the OS/computer system you are using.
For windows, many sound cards have ASIO drivers bundled with them. If you are not able to find ASIO drivers, then you can use FREE software called ASIO4ALL.
You will need this to be able to get low latency. If you do not, you will experience a perceptible delay between what you play and what you hear from the speakers. Even then, because you are using an acoustic guitar, you might still notice some delay.
After you get an ASIO driver, then the next step is an amp simualator. One decent freeware software package is VSTHOST ( http://www.hermannseib.com/english/vsthost.htm ). This is a host application which allows you to "run" VST amp simulations. One decent freeware amp and effects package is SimulAnalog ( http://www.simulanalog.org/guitarsuite.htm ).
Once you get these 3 things together and get your latency down, you can decide if the computer amp thing is right for you, and then invest in commercial packages.
Reaper is a decent shareware recording package which can also act as a host for VST effects.
For an unpowered guitar you want to use the mic jack. But the other commenters are correct: if you use a powered output (or even a preamp built into an acoustic) you MIGHT risk damaging the soundcard.
Absolutely. There are many amp simulators available---I like Amplitube, but there are plenty of others.
If you're using an external audio interface to plug your guitar into your computer, you will probably want to set up your software to use the audio interface for output as well; otherwise you're likely to run into latency issues.