In the present research paper modeling principles for the oil-water separation with special emphasis on the modeling of dense packed layer (DPL) is presented. Formation of the DPL is attributed to the difference between sedimentation rate and interfacial coalescence rate. Different submodels resolving for the free sedimentation zone, the DPL, the binary coalescence, and the interfacial coalescence are described. These submodels are implemented in commercial CFD software. Adequate validation and calibration of these submodels are necessary to be used for understanding the separation processes in industrial separators. Experiments for understanding the water-in-oil separation processes in a horizontal continuous separator were designed and carried out. Results from bottle and decay tests were used only for calibrating the model. CFD simulations using the calibrated model have served to understand the flow phenomena occurring inside the horizontal separator. The prediction of the model seems to be satisfactory except at higher emulsion flow rate and lower water cuts.