It is also known as Rheostatic braking. In this type of braking, the DC motor is disconnected from the supply and a braking resistor Rb is immediately connected across the armature. The motor will now work as a generator, and produces the braking torque.
During electric braking when the motor works as a generator, the kinetic energy stored in the rotating parts of the motor and a connected load is converted into electrical energy. It is dissipated as heat in the braking resistance Rb and armature circuit resistance Ra.
Dynamic Braking is an inefficient method of braking as all the generated energy is dissipated as heat in resistances.