First of all, let’s dispense with the word “demo”. Stop using it. What you have made is a promo. These days, the word ‘demo’ has acquired connotations of “not as good as it would be if we had a decent budget and could play our instruments properly”.
Having sorted that one out – the format on which you should present your promo recordings is ‘both’ – and it’s entirely context dependent.
If you’re trying to get interest from a print publication, venue, record label or a radio station, then generally speaking, they’re still working very much in the realm of physical CDs. If you want attention from an mp3 blogger, potential manager, promoter (particularly one in another city), then you should certainly have ready some mp3s for them to access and download.
But as someone who gets sent an awful lot of promos, I have a few tips that might help you see it from the recipient’s perspective.