In a nutshell, dynamic schemas will read whatever attributes are in the source file without caring what they are and auto-write them out to the destination format.
Static schemas will only write out the attributes you've defined in your workspace.
Note that 'Dynamic' capability is often, but not always used with FME's ability to read/write data Generically using the Generic Reader/Writer. Both Generic and Dynamic when used together means that you can decouple format and schema completely from your process and write a workspace that can carry out data validation and cleansing on ANY data no matter what the format or schema.
One interresting thing (which I didn't really find on the sites) is that you can even combine dynamic and static! If you make sure your workbench is using dynamic schemas correctly, you can still add fields to the output. Eg.: for spatial calculations.
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