The DHCP server may have three methods of allocating IP-addresses

This protocol is used to assign IP addresses to hosts or workstations on the network. Usually a DHCP server on the network performs this function. Basically it "leases" out address for specific times to the various hosts. If a host does not use a given address for some period of time, that IP address can then be assigned to another machine by the DHCP server. When assignments are made or changed, the DHCP server must update the information in the DNS server.

automatic configuration protocol used on IP networks. Computers that are connected to IP networks must be configured before they can communicate with other computers on the network. DHCP allows a computer to be configured automatically, eliminating the need for intervention by a network administrator. It also provides a central database for keeping track of computers that have been connected to the network. This prevents two computers from accidentally being configured with the same IP address.

Depending on implementation, the DHCP server may have three methods of allocating IP-addresses:
dynamic allocation: A network administrator assigns a range of IP addresses to DHCP, and each client computer on the LAN is configured to request an IP address from the DHCP server during network initialization. The request-and-grant process uses a lease concept with a controllable time period, allowing the DHCP server to reclaim (and then reallocate) IP addresses that are not renewed.
automatic allocation: The DHCP server permanently assigns a free IP address to a requesting client from the range defined by the administrator. This is like dynamic allocation, but the DHCP server keeps a table of past IP address assignments, so that it can preferentially assign to a client the same IP address that the client previously had.
static allocation: The DHCP server allocates an IP address based on a table with MAC address/IP address pairs, which are manually filled in (perhaps by a network administrator). Only requesting clients with a MAC address listed in this table will be allocated an IP address. This feature (which is not supported by all DHCP servers) is variously called Static DHCP Assignment (by DD-WRT), fixed-address (by the dhcpd documentation), Address Reservation (by Netgear), DHCP reservation or Static DHCP (by Cisco/Linksys), and IP reservation or MAC/IP binding (by various other router manufacturers).