How do dynamic lists and automation rules differ, and when would you choose each?

A dynamic list maintains membership: prospects join when they match and, importantly, leave when they stop matching. An automation rule performs actions — assign, adjust score, add to list, set a field, send an autoresponder — and by default acts on each prospect only once.

I use a dynamic list when I want a continuously accurate audience, such as 'all prospects at grade B or above in EMEA' for a recurring regional send. I use an automation rule when something needs to happen to the prospect once, such as being assigned to a rep or having a lifecycle field stamped.

The trap is using a dynamic list as the recipient list for a one-time send you may want to reproduce: because membership shifts, you cannot reliably reconstruct who received it. For that, I copy the members into a static list at send time.