I have Bridge and P/S CS3 with the most recent RAW download. If I take a 12MP image into RAW with settings: Abobe 1998, 8 bit, 12MP, 250 DPI. Then open it into P/S, I get an image size of around 17 by 11 inches...
When I change the DPI in RAW again to say 100 DPI, I open in P/S again and I get a much larger image size.
Less PPI (there are no dots in Photoshop) = larger image dimension...more PPI = smaller image dimensions, if you think about it, it will make sense to you. Camera Raw is only assigning the PPI for Photoshop, it's not resampling unless you tell it to.