AFAIK, neither is what Project does. In Help for that dialogue box:
====
Days per month. Defines the number of days that you want Office Project
2007 to assign to a task when you enter a duration of a month. For
example, by default Project assumes that you want a duration of one
month to equal 20 days. If you enter a duration of two months for a
task, with the default settings, Project assumes a duration of 40 days.
This setting also works with the Hours per day setting. For example, if
a month is equal to 20 days and a day is equal to 8 hours, then Project
assumes that a task that requires two months to complete has a duration
of 320 hours. The default setting is 20.
====
So it just is a way for your inputing, say "20m" into 400d if the days
per month is 20.
Because of this complexity and the fact that our ancestors defined month
lengths with some complex algorithm known only to them, I simply avoid
the idea of using Months (except for high level reporting/analysis).
For defining a project plan, I recommend using Days, or Hours if that
feels better. And internally, Project keeps track of all this time in
minutes anyway.
--rms
www.rmschneider.com