Terrelle Pryor is fast, tall and not particularly good at throwing the football. Looking at him out of college the main knock was he has a weak-to-average arm and slow release, which hasn't really changed since he came into the NFL, which has limited his performance as a starting quarterback (more so than his mental acuity/struggles with the system). Given that, and given that the Seahawks have a pro bowl starter at QB with a proven, respected veteran as his back-up, Pryor's role on the Seahawks roster is not immediately clear.
According to a report from PFT (sorry), the press release from the Seahawks on Pryor is effusive in its praise of his abilities ("Terrelle is an incredibly explosive athlete and we’re excited for him to come in and compete,") and identifies him as a quarterback, and "per a source with knowledge of the situation", he will indeed remain quarterback.
Frankly, the notion of him switching position at this stage of his career was somewhat of a stretch to begin with, and it's not surprising to see it shot down. It takes more than athleticism to master any position in the NFL and it is a rarity to see a player who has already landed in the NFL to make a switch to a completely different position. From college to the NFL such switches are more common but even then they very often utilize skills learned in their college position for their NFL position, which is tenuous if switching from QB to pass-catcher (compared to - say - cornerback to safety, or even quarterback to fullback). It is very tempting to look at his athleticism and go "put him in at WR!" but unless you're willing to invest multiple years into such a project without any guarantee of good results, that is an unlikely path to take.
Having said that, the plan appears to be to have him compete with Tarvaris for the backup spot. Possibly he would take a third QB spot if both make the roster, as more of a development prospect in the traditional starter-veteran-prospect QB depth. If so, we could still see him take the field for a handful of snaps a game and line up wide or as a running back or in the wildcat or any of a large variety of trick plays. With Harvin back the bag of tricks will be deep next year, and Pryor would only add to that. His "designation" is only partially relevant there, whether he would be a "converted WR" or a "QB", he'd be unlikely to see the field for more than a handful of snaps per game.
If you're reading this and thinking "man Beeks sure is slamming the move", I'm not. It's a 7th round pick. Most 7th round picks don't make the starting roster. If he doesn't make the opening day roster, and just served as a camp arm, that'll be fine, because you wouldn't really expect more from a 7th round picked QB either. Our front office is smart and knows how to get good value from low picks, and if in their view a flier on a project athlete like Pryor is worth more than what they would be likely to get with pick #32 in the 7th round (we won the Super Bowl, you see), then I'd wholeheartedly agree. But it is honestly just a flier and should be treated as such, and whether it works out or not won't really hurt the team anyway.
To further reinforce the flier notion: he only has one year left on his rookie contract. Which pays him $705K, compared to Tarvaris Jackson's $1.25M and Russell Wilson's $662,434. Yes, Wilson is now the third highest-paid QB on our roster.