I found this discussion group post by Scott Sheppard [Autodesk] interesting. He explains how DWF DPI (dots per inch) influences file precision, especially for measurement with Composer, and why you can set DPI to huge values, in image terms, without greatly impacting file size.
The precision of a DWF Composer is based on the DPI settings of the ePlot pc3 driver in AutoCAD. You should not think of this value in printer/plotter terms. The human eye can discern about 1200 dots per inch. This is fine for visual information, but what you want in your DWF file is something where you can get precise measurements. Do not fear setting the DPI value to a high value. You are not saving more dots. The DWF file will increase in size by a small percentage, but not drastically.
By setting a high precision value, you are really affecting the numbers that get stored in the DWF file. For example, for a line that goes from (1,1) to (2,2), AutoCAD could save the points as (1,1) and (2,2). On a piece of paper that goes from (0,0) to (3,3), you have a sense at where this line would appear on the page.
On the other hand, you could represent that same line as going from (1000,1000) to (2000,2000) on a piece of paper that goes from (0,0) to (3000,3000). You can see that AutoCAD is still only saving two points of data for the line - it's just a question of what the values in the DWF file are. By having a larger coordinate system, measuring portions of the line can be more precise.