Dynamic equalization is usually used in the following cases:
Removal of resonances.
Elimination of unnecessary side tones.
Dynamic equalizers are used for the removal of resonances on harmonic instruments. If you use usual equalization, the removal of resonances on a certain chord can lead to the removal of useful frequencies on another one. To avoid it, the resonance is removed dynamically. The removal of the picked out frequency happens if the level exceeds the specified cutoff point.
Besides, dynamic equalizers are quite often used during vocal online mixing and mastering to reduce hissing and droning sounds. As stated before, dynamic equalizers can be used for dynamic instrument equalization (on the analogy of multiband compressors).
Some of the best known dynamic equalizers are the following:
iZotope Ozone 7;
Brainworx bx_DynEQ v.2;
Out of free of charge plugins I have found TDR Nova equalizer to my taste.