dpi rule?

[Cyber Source]

Is there a dpi rule for fonts? In Gnome I can set the dpi for my fonts, 
say 81. Is this dpi (dots per inch) referring to horizontal? vertical? 
or square? Is there relativity that should be followed in conjuction 
with screen resolution? I have been experiencing some strange font 
rendering problems and I believe it has something to do with the configs 
in my XF86Config file. The font problem is most notable in Mozilla but 
also in other apps, etc. Here is a snip from my XF86Config file, Thanks,
Section "Monitor"
        Identifier   "Monitor0"
        VendorName   "Monitor Vendor"
        ModelName    "Compaq P900 Color Monitor"
        DisplaySize  320        240
        HorizSync    30.0 - 107.0
        VertRefresh  50.0 - 120.0
        Option      "dpms"
EndSection
                                                                                

Section "Device"
        Identifier  "Videocard0"
        Driver      "nvidia"
        VendorName  "Videocard vendor"
        BoardName   "NVIDIA GeForce 4 MX (generic)"
        Option      "RenderAccel" "1"
        Option      "NvAGP" "1"
        Option      "TVStandard" "NTSC-M"
        Option      "TVOutFormat" "COMPOSITE"
        Option      "TVOverScan" "0.6"
        Option      "TwinView"
        Option      "SecondMonitorHorizSync" "30-50"
        Option      "SecondMonitorVertRefresh" "60"
        Option      "MetaModes" "1280x1024,1280x1024; 1024x768,1024x768"
#       Option      "ConnectedMonitor" "CRT, TV"
EndSection