they are completely fresh water.
Mine were so tiny when I got them. The first one I had in a 5 gallon, but he didn't eat or seem very happy, so I made a snap decision to set up a 10 gal with sand and plants. I don't recommend this, but my tank wasn't even cycled when I introduced my first DP. Since then, it's been cycled, and all the DPs are fat little fellers.
They do have the ability to puff up, but I've not witnessed my DPs puff as of yet. They do have little beaks that grow, and must be fed snails on a regular basis to help wear down their teeth. Much like other puffs, they are EXTREMELY messy fish. Over filtration is good, along with regular water changes.