Dynamo lights have a generator usually built into either the front hub or a generator that bolts to the frame and can be triggered to rotate against one of the tires. The generator is then wired to the lights eliminating the need for batteries. The two major disadvantages are 1; the lower end sets go out when you stop, and 2; they don't seem have as much side spill light. The biggest advantage is, you never have to worry about batteries again.

Reellights are the same general idea. Instead of a generator you put magnets in the spokes and the entire wheel becomes your generator.

I use sidewall bottle dynamos and my bikes and have the base model reellight on one and have been happy with what I have.

Note, dynamo systems and the reellight are not cheap. A decent dynamo using a bottle generator will set you back well over $100, and the base model of the reellight, which is a flashing headlight and tailight mounted at hub height, has a list price of 34 euros

Peter White http://peterwhitecycles.com/lightingsystems.htm has much information on dynamo systems and what makes a good light.

Reellight info is at http://www.reelight.com/