We critically review dissipative particle dynamics (DPD) as a mesoscopic simulation method. We have established useful parameter ranges for simulations, and have made a link between these parameters and chi-parameters in Flory-Huggins-type models. This is possible because the equation of state of the DPD fluid is essentially quadratic in density. This link opens the way to do large scale simulations, effectively describing millions of atoms, by firstly performing simulations of molecular fragments retaining all atomistic details to derive chi-parameters, then secondly using these results as input to a DPD simulation to study the formation of micelles, networks, mesophases and so forth, As an example application, we have calculated the interfacial tension sigma between homopolymer melts as a function of chi and N and have found a universal scaling collapse when sigma/rho k(B)T chi(0.4) is plotted against chi N for N>1. We also discuss the use of DPD to simulate the dynamics of mesoscopic systems, and indicate a possible problem with the timescale separation between particle diffusion and momentum diffusion (viscosity). (C) 1997 American Institute of Physics.