Dynamic Shadows use a real time alogrithm to adjust the shadow a moving object casts as it moves in relation to the light source. This is probably the most noticeable in Sh4 wave action.
Save the game in heavy seas and use your external camera to go close and watch the wave action. Look carefully at the shadows on the waves. Close the game, open the Main.cfg file and change the line DynamicShadows to Yes. Restart the save and repeat. This will give you an idea of the effect of Dynamic Shadows. If your video card is up to the challenge it increases the eye candy.
For the techincally minded
http://www.gamasutra.com/features/19...freitag_01.htm