Dynamic Lights are lighting effects which interact with surrounding objects. For example, the way the muzzle flash from guns light up surrounding areas, the way in which explosions shed light, etc. The options here are Off, Low, Normal and High. In general the higher the setting, the more objects cast dynamic lights. However even at Low the most obvious dynamic lighting (muzzle flash for example) is visible, and higher settings will have a noticeable negative performance impact in areas with multiple light sources/weapons - so if you need the FPS set this to Low for a good balance of image quality and performance. This setting will also further impact on performance if Shadows is enabled