@Mohit:
DSP: A dynamic server page (DSP) is a document embedded with a dozen special codes (tags) that instruct the webMethods Integration Server to perform certain actions when an HTTP (or HTTPS) client requests the document. They are HTML based, they can be used to build complex user interfaces that includes any valid construct (e.g., forms, cascading style sheets, JavaScript) recognized by the client’s browser. [Ref: DSP user Guide].
CAF: Composite Application Framework development enables you to create Web applications and portlet application projects for use with My webMethods Server. A Web application is an application that a user accesses over the Web on either the Internet or an intranet.
When DSP? : When you have little to do in UI, minimalist approach. Maintenance/development of DSP is tough as not validator available, like HTML.
When CAF: When you need to come up with a full fledged web application or a complex UI with multiple conditional UI elements.
Hope this helps.
#Integration-Server-and-ESB#webMethods