Just a note on capacitors - they can be used to smooth out a flickering power source to some extent which may be why it was suggested. My electronics experience is mostly in audio amplifiers and I use a capacitor in this nature when running a signal through an old school needle-type level meter to smooth out the signal hitting the needle, this prevents it from jumping around faster that you can track it.

I think it would probably help in lighting as well to prevent it from rapidly flickering as the dynamo's output varies.