Log requirements and Map the Test Cases to them, and when you execute the Test Cases and log defects for a Step that has failed, The Coresponding test case fails which changes the status of the requirement as failed.
disagreed with gmanglik!
Although you can map your test case to a requirement, In no way it is called traceability matrix. T.M means much more than that. And by the way, Test Director is built for Test Managment. It is not built for Requirements Managment.
There are some tool that can help you, Harita, to track of Requirements to Test Case. Caliber can do that.
Hope this would help.