I was always under the impression you were supposed to put the game sens down to minimum/use raw input and set your mouse DPI to what you want.
Unfortunately not all games treat mouse sensitivity equally.
Some time ago, where early Quake engines were concerned, there were some 'flaws' in sensitivity meaning that if you didn't use an integer value, it could behave inconsistently due to rounding. Additionally, although I was never convinced myself, it was also proposed by some analysts that in fact any in-game sensitivity other than "1" was sub-optimal because it would amplify any inaccuraccies in calculation/rounding. The best solution was to set sensitivity 1 and then adjust windows sens and/or m_pitch and m_yaw to achieve the desired effect. I suspect as mouse DPI increased, this became less of an issue anyway.
Personally I think I'm use approx 5.5cm for a 360 spin, which is generally regarded as quite high sens.
In terms of what is 'best', there is no hard and fast rule, however:
1) Low sens, if you can use it well, should in theory be better as it allows more precision in small movements
2) If sens is too low however, it can make it more difficult to perform 180 degree flick shots, and also increases the likelihood that you will need to lift the mouse off the pad.
My recommendation would be to use as low a sensitivity as you can where #2 doesn't become a problem to you.
Additionally, FOV can have an impact. Typically, the lower your FOV, the lower sens you will want to use because a given turn will affect your display (albeit not the actual amount you turn) more. Conversely I found that I could play with quite high sens when I used high FOV (133).
Finally, what games you play probably has a bearing on it too. Personally I play Quakeworld, which is an extremely fast paced game (a 20min 4v4 TDM match will typically have between 350-500 frags) where being able to perform flick shots is absolutely essential. For other, slower-paced FPS this perhaps isn't so crucial.