Modules are best for libraries. They give you more control over what is exported from the module. That is by default all script variables in a PSM1 file are private - not visible outside the module when it's imported. Likewise, all functions are public. However, you can use Export-ModuleMember in your PSM1 file to control exactly what variables, functions, aliases, cmdlets, etc that you export from your module. Modules can also be removed from your session which is a major difference with dotsourcing a .PS1 script. Another difference is that module functions are namespaced by the module they're in so you can easily access identically named module-based functions by prefixing the module name and a "\" to the function name e.g. PSCX\Get-Uptime. In ISE, this prefix also invokes intellisense support.
I generally recommend going with modules. :-)