AFAIK when people talk about dynamic cloth or hair they mean there’s some sort of physics involved; the deformation is calculated at runtime.
The opposite of this is using keyframes. Look at spritesheets for 2D games, like say Street Fighter 2 to get an idea of how that works – for each pose you move the cloth around, basically. In 3D though you’d be using a lot of bones to control the deformation so generally you’d want to bake it somehow.
The “apply as shapekey” button on the armature modifier comes in handy here. Way I do, is have a separate armature for animating softbodies, get all the poses I need, then duplicate the mesh and bake everything to shapekeys. Keeping the original means I get to redo the process if I want to make any changes later on. Eh, but this one is more complex. And sort of requires scripting your own tool to make it less tedious.
The more straightforward alternative is just having fewer bones to animate cloth. Won’t look as good, but it won’t cause as many headaches.