When should I use @classmethod and when def method(self)?

Your guess is correct - you understand how classmethods work.

The why is that these methods can be called both on an instance OR on the class (in both cases, the class object will be passed as the first argument):

class Dummy(object):

    @classmethod
    def some_function(cls,*args,**kwargs):
        print cls

#both of these will have exactly the same effect
Dummy.some_function()
Dummy().some_function()

On the use of these on instances: There are at least two main uses for calling a classmethod on an instance:

1. self.some_function() will call the version of some_function on the actual type of self, rather than the class in which that call happens to appear (and won't need attention if the class is renamed); and
2. In cases where some_function is necessary to implement some protocol, but is useful to call on the class object alone.

The difference with staticmethod: There is another way of defining methods that don't access instance data, called staticmethod. That creates a method which does not receive an implicit first argument at all; accordingly it won't be passed any information about the instance or class on which it was called.

In [6]: class Foo(object): some_static = staticmethod(lambda x: x+1)

In [7]: Foo.some_static(1)
Out[7]: 2

In [8]: Foo().some_static(1)
Out[8]: 2

In [9]: class Bar(Foo): some_static = staticmethod(lambda x: x*2)

In [10]: Bar.some_static(1)
Out[10]: 2

In [11]: Bar().some_static(1)
Out[11]: 2

The main use I've found for it is to adapt an existing function (which doesn't expect to receive a self) to be a method on a class (or object).