At the back of CD or DVD, we could see a spectrum in which all the colours are overlapping with each other(continuous spectrum). Is this dispersion or diffraction?
Dispersion means splitting of white light into its constituent colours or wavelengths; Diffraction means bending of light around the edges of the obstacles.
So which phenomena is the reason for the spectrum at the back of DVD or CD?

 

I'm having a hard time coming up with an exact definition of the two terms, but it seems like diffraction describes the action where several light beams interact, and dispersion describes the result when the result is that different wavelengths go in different directions.

Diffraction around an edge can change the direction of light but without dispersion, and prisms can disperse light without diffraction, but gratings (including CD and DVD tracks) cause dispersion by the action of diffraction.

 

Dispersion typically indicates where the propagation characteristics of a wave change with frequency (the technical folks will say "the phase velocity depends on frequency"). A prism works because of dispersion: the optical index of refraction of the light changes with the light's frequency. Or, a more familiar example is thunder. If you've ever heard a lightning strike close up (say, within a few tens of meters), then you know it sounds like a gunshot. However, sound propagation in air is dispersive and at a distance from the lightning (kilometers), you hear quite a different sound -- in general, both dispersion and diffraction play a role in the thunder you hear, especially if you're in non-flat terrain.

Diffraction is a phenomenon that is composed of constructive and destructive interference when a wave phenomenon interacts with matter. Here's an experiment dealing with diffraction from a CD. Since laser pointers are so prevalent, it's an easy thing to point a laser at a CD surface and see the diffraction pattern. Since I had my laser distance meter and a CD sitting next to me, I took a picture of such a pattern.

 

This might help - http://hyperphysics.phy-astr.gsu.edu/hbase/phyopt/grating.html