The Dynamic Select Field is a select field where the list of options changes dynamically according to the value of another field.
Say you have a Select Field with which you choose a nation, and based on this you want to provide a choice among cities in the selected nation. Then on the dynamic select, you would set the as Reference ID the ID of the nation field. And on the options list you would write something like this:
Rio de Janeiro
Where the value of the reference field goes inside square brackets and is followed by all the options connected to it.
Here is a tutorial on how to use the Dynamic Select Field.