Dynamic programming is an algorithm design technique that solves problems by breaking them down into smaller subproblems and storing the results of already solved subproblems. It is applicable when subproblems overlap and share common subsubproblems. The dynamic programming approach involves (1) characterizing the optimal structure of a solution, (2) recursively defining the optimal solution value, and (3) computing the optimal solution in a bottom-up manner by solving subproblems from smallest to largest. This allows for computing the optimal solution without resolving overlapping subproblems multiple times.