Well-developed literary characters are labeled in many ways: round, dynamic, believable, fully realized etc. All of these labels mean the character seems as though he or she embodies the range of qualities -- both good and bad -- that real people have. The way in which the reader or audience experiences this range of characteristics is by witnessing the character go through some sort of change during the story.
Dynamic Characters in Literature
Not all characters are dynamic. For example, the princes in many fairy tales are static: They are handsome and heroic; they don't develop bad habits or cheat people out of money. A character such as Ebenezer Scrooge in Dickens' "A Christmas Carol," however, is dynamic because although he is miserly in his old age, over the course of the story you see him -- by way of his visits from the three spirits -- reconnect with his latent qualities of generosity and good will. In short, he is a person who made mistakes but isn't an evil person. In nonfiction, a more complex example of a dynamic character is Janette Walls' father in "The Glass Castle." Rex Walls is an alcoholic who regularly endangers his family's well being, but he also loves them and does good deeds, trying several times to change for good. His overall fluctuation between function and dysfunction might appear like a static rhythm, but these movements are progressions and regressions; these are developments and still dynamic.