Yes, the buyer would enter the Discount Code they want to redeem in the text box above the Buy Now button in your page. Bear in mind that only certain types of discount can work with Buy Now buttons:
http://www.e-junkie.com/ej/faq.discounts.buy-now.htm
If you want to offer a type of discount that will not work with Buy Now buttons, then you would need to use Cart buttons instead of Buy Nows, so in that case buyers would enter their Discount Code where indicated in the cart, before they proceed to checkout.