DSL stands for domain specific language. It is a markup, mini-language, or shorthand syntax that specifies the nature of the displayed content, or the functionality of the item. It's equivalent to a mini-programming language.
Each paragraph item in wiki is rendered by a specific plugin, and each plugin can determine it's own DSL used to edit its behaviour.
Wiki has evolved certain conventions with regard to this markup (for instance commands are all-caps single word that begin a line), but the plugin author is free to implement whichever syntax she likes.
The addition of a DSL to the plugin gives back power to the author to transform and refactor the content displayed. Plugins that add this editing capacity we call refactoring tools.
It is often desirable to restrict the scope of this editing to meaningful or a set of restricted parameters.
There are situations where you do not want the original content to be easily forked. See for example the proposed About Transclusion Plugin.