This paper presents theoretical and experimental study of ultra-compact Si-wire Optical Directional Couplers (ODCs) on Silicon-on-Insulator wafer for optical signal processing. The presence of the controllable evanescent light strongly confined in the region bounded by the Si nano-wires has a large impact on the optical power coupling between waveguides. The characteristics of coupling length and power transmission in ODCs based on separation, wavelength, light field propagation distance and geometry of waveguides are described in detail by the coupled mode theory, 3-D finite-difference time-domain analysis and beam propagation method, and are confirmed by experiments. The exponential dependency of coupling length on the separation of coupled waveguides and wavelength shows interesting high-sensitivity optical sensing, switching and multiplexing properties. Custom spectral properties can be achieved by the configuration of coupled nano-wire waveguides based on their separation and lengths. We show that optimization of ODCs based on the physics of the coupled waveguides will lead to short optical devices which can be integrated as building blocks within high-density photonic circuits with the desired spectral characteristics. In the end, two new systems based on Mach-Zehnder structure and Micro-Ring Resonators are proposed in which ODCs are implemented as embedded tunable devices resulting in more functional optical sensing and signal processing devices.