Uses:
Unrated songs. It is nice to rate them while on the road and then have them drop off the playlist once the rating is assigned.
Podcasts. I have several Podcast play lists (based on content/subject) and want the tracks to drop off once I have listened to them.
Ratings based playlists: If I change the rating of a song I want the playlists based on ratings to also change.
'Mix' type play lists can be created using a dynamic play list based on other dynamic play lists. This gives you the ability to have 'mix' play lists that change without having to re-sync to your MC machine.
then when I sync - the smartlists update and are always applicable to the selection on the iPod.
The key there is 'when I sync'. For those of us that travel and spend a lot of time away from our MC library (for work/personal/vacation), having a bunch of static play lists on the portable device becomes a PITA to deal with.