Let's say I have a particular dataset which I use in most of my MXDs, and I use a *.lyr file to ensure it's identical in each MXD.
Now I decide I want to make a change to its symbology, or the labelling properties, etc. At the moment I need to make this change in every MXD which uses this layer. Sure, there are shortcuts such as deleting the layer from the TOC and re-adding it as a *.lyr file.
But what I'd really like is the ability to specify a layer in the TOC as "dynamic", so that it references a central *.lyr file on disk. That way I can update the central *.lyr file once, and have the changes propagate through to each MXD which uses it.
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