Another way to look at a Dynamic Ad is that its code. You craft it to give the closest possible ideal Ad to the end user when your Ad gets Displayed to them. You can do many different things, such as if a certain keyword is used it rewrites the Ad to a different param and then sends to the appropriate page. You can get very crafty. Though it is much more in depth than my and Maya's explanation. Your Ads will literally change according to your variables and creativity.
To properly understand AdWords and how to use Dynamic Ad's you should first have a solid grasp of how to use AdWords, create Ad content, build it to an acceptable CTR-CPC range for your niche. Then get into the Dynamic Abilities. If you jump right in there first you could hurt yourself in the long run by not properly understanding the Ads and why certain things work and why others do not.
Highly profitable PPC campaigns have very large budgets per month and will deploy all advertising types and methods every month and not focus on a singular area. Getting a PPC campaign managed is generally the best choice for many, especially those who do not want to read the insanely long DOC's relating to all things AdWords and their terms and conditions.
But I have seen CTR increases averaging 8% when using a proper Dynamic Ad campaign AND using Dynamic Ads properly. Many try to use it, though most do not grasp its fully abilities and end up doing worse with it because they are not harnessing the powers it has effectively. Which Google penalizes you for.