To start things off, let's assume that you are already familiar with GD, and that you have read articles such as this. If you are already familiar with GD's basic concepts and wish to move further, this is the right place for you.
Since PHP4.3, GD has come bundled with PHP. This means often that you only have to change one line to install GD. If you do not know if GD is installed, run phpinfo() and look for GD's section; if it's there, you have it installed. If you do not have GD, open PHP.ini and remove the semicolon in the line";extension=php_gd.dll".
GD can be used to do the simplest tasks in image editing, or some extremely advanced things. You have to bear in mind, however, that since other people are going to be viewing your script, they'll have to download it. If runtime is slow and download is even slower, your visitors aren't going to stay for long. So don't overuse GD's functions!
Since GD can be so widely used, we must first think of a use for a dynamic image. The first thing that comes to your mind should be counters, thumbnails, and perhaps advertisements. Counters are, usually, a graphical representation of the number of visitors. Types of counters vary, however, and are not always even shown to the user. Most counters are textual, but still graphical, representations of the number of visitors. Thumbnails, as you probably know, are just shrunken versions of an image. These are used to speed up viewing of things like galleries. Users can see a picture before they have to spend time downloading the actual version. Advertisements can also be dynamic. You could use a static <img> tag to link to a PHP file, where the PHP file outputs a random image. This would be much easier than including a long script on every page that picks an image. However, these are all very simple ideas with only several GD functions. Examples of more advanced scripts include colorizing images and TTF text with effects. Colorizing images is just that - colorizing them. Colorizing just means "changing the color." This can be used for neat mouse-over effects, among other things. GD comes with only a basic TTF text utility, but you can do wonders with it, if you know how.