This explains it pretty well;

The higher the DPI, the higher the sensitivity. Don't buy an expensive mouse for high DPI because your never going to use like 8000 DPI really.

Detailed explanation:

To make it clear, DPI is the polling rate that the mouse uses to track where it is in relation to where it was. Think of it this way, every <x> seconds, I send out a laser beam. The laser beam bounces off of the object in front of me, and returns to me in <y> seconds, after I take a few steps to the left. Using some basic math, I can locate where the mouse is in relation to where it was.
The X variable is the polling rate. The distance traveled between X and Y is your DPI, or dots per inch.
The more DPI you have, the more dots consist between point A and point B. The more dots you have, the more precise the mouse mvoement is.

Source: To another forums (can't post the link -.-)

Cheers guys whats the best for games like Arma,Dayz and CS: GO?

Teizohm8 wrote Cheers guys whats the best for games like Arma,Dayz and CS: GO?

I have only ever used two settings, 800 and 1600. For Arma I recommend 1600, it works for me. The maximum my mouse goes to is 2000 but I have never used that.

There is no "best" setting, its what you feel comfortable using. Cheap good mice like the CM Storm Xornet come with changeable DPI on the fly and I used to use the top setting on that.