Juliane Stiller and Kaspar Szymanski clarify the fuss about “dynamic URLs in comparison to static URLs” and which can Googlebot read better, static or dynamic URLs?.
What is a static URL? A static URL is one that does not change, so it typically does not contain any url parameters. It can look like this: http://www.example.com/archive/january.htm. You can search for static URLs on Google by typing filetype:htm in the search field.
What is a dynamic URL? If the content of a site is stored in a database and pulled for display on pages on demand, dynamic URLs maybe used. In that case the site serves basically as a template for the content. Usually, a dynamic URL would look something like this: http://code.google.com/p/google-checkout-php-sample-code/issues/detail?id=31. You can spot dynamic URLs by looking for characters like: ? = &. Dynamic URLs have the disadvantage that different URLs can have the same content. So different users might link to URLs with different parameters which have the same content. That's one reason why webmasters sometimes want to rewrite their URLs to static ones.
Google have made some progress in both areas. While static URLs might have a slight advantage in terms of clickthrough rates because users can easily read the urls, the decision to use database-driven websites does not imply a significant disadvantage in terms of indexing and ranking. Providing search engines with dynamic URLs should be favored over hiding parameters to make them look static.