From DSL Wiki
.dsl extensions are loaded into RAM. They may write their files anywhere. Any part of the filesystem that these extensions write their files to must also be unpacked to RAM, and so these extensions can eat a lot of RAM.
.tar.gz extensions are safer to use on low ram systems, because they only write to /home and /opt, which are already writable anyway.
Note that if you load DSL toram, a .dsl uses no more than an equivalent .tar.gz, unless you use Persistent home or opt directories, in which case a .tar.gz will write its files to a physical drive, and use less RAM that way.
.uci extensions are compressed cloop files that are mounted rather than unpacked. These extensions are mounted into a directory under opt. These are the safest extensions to use on low ram systems. If a .uci is stored on the hard drive, it will use almost no RAM.
.unc extensions are similar to .uci. They are also compressed cloop files that are mounted. However, whereas .uci files can only mount into /opt, .unc can mount into anywhere. This is accomplished via the magic of unionfs. .unc extensions require unionfs be enabled, using the bootcode: unionfs. unionfs is available for DSL starting with version: ???.
See Creating MyDSL Extensions for detailed information regarding how myDSL files are composed.