This might be a bit long but let's give it a shot:
The biggest difference between a dynamic and non-dynamic sprite is how the handle their graphics: Graphics are usually loaded in VRAM, into a what I call "graphics table" and sprites refer their tiles from this. SMW loads the graphics into the table once during the loading screen. But you aren't limited to the loading screen to upload graphics. In fact, it is possible to change them when the level runs (that's what ExAnimations are doing, btw). Over the time, we managed to find a way to upload graphics in a similar way. The advantage is that the sprite can use more frame (allowing smooth spinning frames) but since sprites need to take their tiles from the graphics table, dynamic sprites reserve certain tiles from said table (specifically, the last four rows of page 4 in the 8x8 editor, to be precise) and sprites which use tiles from the reserved area are unusable, at least with dynamic sprites, and you're also limited to have up to four dynamic sprites (SMW's sprites aside, see below) on screen due to the amount of tiles they reserve (4 rows equals 128 tiles, enough for 4 32x32 sprites) but also because you're limited to how much you can change the graphics table (alongside other graphical stuff).
Now we get to the insertion: The first thing you need is to download the
dynamic sprites patch (not necessary with SA-1 as the SA-1 patch includes it on its own). Next, we need some sprites. Simply open the filter chose "Yes" for dynamic. Then download a such sprite, put the ASM and CFG file but also the BIN file containing the dynamic graphics into the sprites folder and insert it as you would with a non-dynamic sprite. Keep in mind that certain sprites include regular graphics which you insert them in Lunar Magic (e.g. YI piranha plant with the stem or the YI cannon for the bullet bill and the bottom part of the cannon) but these are usually noted, either in a readme or by having "(SPx)" in their name (where is x a number from 1 to 4) or something like.
And by the way, the original game features some dynamic sprites too, specifically Mario (although he isn't a sprite in SMW's sense), Yoshi, Baby Yoshi and Podoboos. You can't see their tiles in either pages sprites as they upload their tiles to the X tile and the Nintendo Presents graphics.
tl;dr The difference between a dynamic and a non-dynamic sprite is how they handle their graphics. All you need to do is to apply
this patch (not needed with SA-1) and insert the sprite as usual but don't forget to put the necessary BIN file into the same folder as where the ASM and CFG file is located.
As a block, it's impossible, because blocks only run their code when something (either Mario, his cape, a sprite or a fireball touches it). Bullet bill cannons can't shoot on their own too. That's why shooter sprites. It isn't hard to modify
one to transform it into a monster spawner similar to Minecraft (some small ASM experience is required, though), but... how do you want to have the monster implemented exactly?
