Can you please explain me Use of Reference field in DFF?

You can create context sensitive DFF fields, meaning different fields will appear in different situations.

You can have the content field displayed to the user.
The "Context" field on DFF screen is used for this purpose.

Example:

Content field - Country (Canada/USA).

If user selects Canada then make following DFF fields appear:
Address, Province, Postal Code

If user selects USA then you can make following DFF fields appear:
Address, State, Zip Code

You may wish to base your DFF context sensitivity on some existent field on the underline form rather than on a context field which relies on user's input.
The reference field is used for that purpose.

For example, lets say a country field is already there on the form on where you are enabling DFF fields.

You can choose that field's name in the REFERENCE field.

In our example, using reference field system will automatically know which country is in the context and DFF fields associated with that country will be shown accordingly.

REFERENCE Field - If the context sensitive information is derived from a field in the form then that field is called as a Reference Field.

CONTEXT Field - If the context sensitive information is derived from a field / segment in the DFF pop up windown then that field is called as a Context Field.