In addition to what xDrAGoNx said, DPI also refers to the sensitivity of a mouse (its resolution). It basically has to do with how tight it picks up input, and one of the benefits of USB mice is that their DPI is generally better than PS/2 mice.
I have a Logitech optical, and the difference between its USB and PS/2 mode in terms of DPI is amazing. As a USB mouse, it's sensitive enough so that I just move it around in a very small circle to get around my desktop (at 1152x864), but when I used the PS/2 adapter, the thing required a lot more wrist movement.