Dynamic programming is a powerful technique for solving optimization problems by breaking them down into overlapping subproblems. It works by storing solutions to already solved subproblems and building up to a solution for the overall problem. Three key aspects are defining the subproblems, writing the recurrence relation, and solving base cases to build up solutions bottom-up rather than top-down. The principle of optimality must also hold for a problem to be suitable for a dynamic programming approach. Examples discussed include shortest paths, coin change, knapsack problems, and calculating Fibonacci numbers.