A dynamic IP address is a temporary address assigned to a device on a network, allowing it to communicate with other devices. Unlike a static IP address, which remains constant, a dynamic IP can change each time the device connects to the internet or after a certain period. This is managed by a server using the Dynamic Host Configuration Protocol (DHCP). Dynamic IP addresses are commonly used by internet service providers (ISPs) to efficiently manage their available IP address pool. This method helps conserve IP addresses and allows multiple users to share a single address, making it a cost-effective solution for both providers and users.