Dynamic range is the amount of detail your camera can record between highlights and shadows in an image. Scenes that have bright sunlight and deep shadows are said to have a high dynamic range. Some cameras let you decrease contrast in these situations to bring dynamic range within the camera's limits.
No camera and not even the human eye, can record the nearly infinite dynamic range that exists in real life, so compromises will have to be made.
Whether your camera can record the whole dynamic range present in a scene or not, depends on the sensitivity of the CCD and the built in processor. As a comparison conventional film has a dynamic range of about 5 f-stops while black and white film can record about 9 stops. Modern CCDs have a higher dynamic range than film.
If dynamic range is outside the camera's limits, it will automatically compromise or the user himself can decide which part of the scene is most important and should be recorded in detail. He can set an exposure by metering for the highlights or the shadows, so that area is shown accurately in the final picture. This can be done by using exposure lock on your camera. An alternative would be to use fill-in flash to lighten shadows and reduce contrast.