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Now that I have the cheap wood removed from around the window sill, I see some serious gaps that I could seal to prevent wind and dust from coming in. What do you guys prefer? Spray foam or caulk. State your reasons please.

Thanks!

Spray foam.
It's purpose is to seal around window/framing and has a insulating R value. Caulking is not designed to seal around window/framing and has no R value.
The right tool for the job is always the prefered method.

If the gaps are as large as 1/4" or more I like the spray foam. But you want to make sure that you use the low expansion type for windows and doors. If you use the regular type it will bow out the wood from the pressure that it makes as it expands.

Ron