I'm no expert on the topic, but I believe Morten is referring to the "problem" of having too many graphic objects in your visual tree and the UX and performance suffering as a consequence. Clustering reduces the number of symbols directly in the client, whereas the FeatureService OnDemand mode only downloads the graphics from the server that are defined for your current view. The latter would obviously work best for services that have layers limited by map zoom level, so you don't get all the features at once.