Dynamic programming (DP) involves breaking problems down into overlapping subproblems. It solves each subproblem only once, storing and reusing the results through a bottom-up approach. This avoids recomputing common subproblems as in naive recursive solutions. The document discusses DP through the example of matrix chain multiplication, explaining how to characterize optimal solutions, define recursive relationships between subproblems, and construct memory-efficient algorithms to solve problems optimally in polynomial time.