Dynamic programming is a method for solving complex problems by breaking them down into simpler subproblems. It is applicable when problems exhibit overlapping subproblems that are only slightly smaller. The method involves 4 steps: 1) developing a mathematical notation to express solutions, 2) proving the principle of optimality holds, 3) deriving a recurrence relation relating solutions to subsolutions, and 4) writing an algorithm to compute the recurrence relation. Dynamic programming yields optimal solutions when the principle of optimality holds, without needing to prove optimality. It is used to solve production, scheduling, resource allocation, and inventory problems.