Finally stumbled across the explanation buried in DU Help:
IMAGE FORMAT DESCRIPTION
read/write
Choose this if you want to continue adding files to the disk image after it’s created.
sparse bundle disk image
Choose this if you want to continue adding files to the image and want to conserve space. The disk image is just large enough to hold the files in it and expands to its maximum size as you add files to it. For example, if you create a 100MB sparse bundle disk image, its maximum size is 100MB.
read-only
Choose this If you don’t need to add more files to the disk image.
compressed
Choose this if you don’t need to add more files to the image and you want to conserve space. The data is compressed so the disk image is smaller than the original data.
CD/DVD master
Choose this if you want to use the disk image with a third-party application. The disk image contains a copy of all sectors of the disk, whether they’re used or not, and copies them to other CDs or DVDs bit for bit.